Edited version of your written advice

Authorisation Number: 1012788380130

Date of advice: 8 April 2015

Ruling

Subject: Personal superannuation contributions

Questions

1. Is the taxpayer entitled to claim a deduction under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of proposed personal superannuation contributions to be made during the 20XX-YY and 20YY-ZZ income years?

2. Will personal contributions made to a constitutionally protected fund for which a tax deduction is claimed count towards either the taxpayer's concessional contributions cap or the taxpayer's non-concessional contributions cap?

3. Will personal contributions made to a constitutionally protected fund for which a tax deduction is claimed count towards the taxpayer's 'low-tax contributed amounts' for the purpose of calculating the taxpayer's low-tax contributions and taxable contributions under division 293 of the ITAA 1997?

4. Will personal contributions made to a constitutionally protected fund for which a tax deduction is claimed be considered 'reportable superannuation contributions' for 'income for surcharge purposes' and taken into account when calculating the income for surcharge purposes to determine eligibility for the private health insurance rebate?

Answers

1. Yes

2. No

3. Yes

4. Yes

This ruling applies for the following period:

Income year ending 30 June 2016

The scheme commences on:

1 July 2014

Relevant facts and circumstances

The taxpayer is a member of a constitutionally protected fund (the Fund).

The Fund is an accumulation fund that allows members to accumulate untaxed benefits of up to $1.355 million and still be concessionally taxed.

The taxpayer only has a small balance in the Fund at present.

The taxpayer is also a member of a complying self-managed superannuation fund (the SMSF)

The taxpayer is a part time employee

The taxpayer is the sole beneficial shareholder of a private company from which they receive dividends (the Company)

The taxpayer is also a shareholder of a number of public companies from which they receive regular dividends.

The taxpayer holds two investment properties which generate rental income.

In the 20XX-YY income year, the taxpayer intends to make contributions to both the Fund and the SMSF.

For the 20XX-YY income year, the taxpayer states that:

• their gross earnings as a part-time employee will not exceed a certain amount;

• they will receive a fully franked dividend from the Company;

• they expect to receive dividends from the public companies;

• they will receive rental income; and

• they will receive interest and foreign income.

In the 20YY-ZZ income year, the taxpayer intends to make contributions to both the Fund and the SMSF.

For the 20YY-ZZ income year, the taxpayer states that:

• their gross earnings as a part-time employee will not exceed a certain amount;

• they will receive a fully franked dividend from the Company;

• they expect to receive dividends from the public companies;

• they will receive rental income; and

• they will receive interest and foreign income.

The taxpayer is between 50 and 73 years of age.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 26-55(2)

Income Tax Assessment Act 1997 Subdivision 290-C

Income Tax Assessment Act 1997 Section 290-150

Income Tax Assessment Act 1997 Section 290-155

Income Tax Assessment Act 1997 Section 290-160

Income Tax Assessment Act 1997 Subsection 290-160(1)

Income Tax Assessment Act 1997 Subsection 290-160(2)

Income Tax Assessment Act 1997 Section 290-165

Income Tax Assessment Act 1997 Subsection 290-165(2)

Income Tax Assessment Act 1997 Section 290-170

Income Tax Assessment Act 1997 Subsection 290-170(2)

Income Tax Assessment Act 1997 Subparagraph 291-25(2)(c)(iii)

Income Tax Assessment Act 1997 Subparagraph 291-25(2)(c)(iv)

Income Tax Assessment Act 1997 Subsection 307-220(1)

Income Tax Assessment Act 1997 Subsection 307-220(2)

Income Tax Assessment Act 1997 Division 293

Income Tax Assessment Act 1997 Section 293-20

Income Tax Assessment Act 1997 Section 293-25

Income Tax Assessment Act 1997 Subsection 293-30(1)

Income Tax Assessment Act 1997 Subsection 293-30(2)

Income Tax Assessment Act 1997 Paragraph 293-30(2)(b)

Income Tax Assessment Act 1997 Subsection 293-30(3)

Income Tax Assessment Act 1997 Paragraph 293-30(3)(a)

Income Tax Assessment Act 1997 Subsection 293-30(5)

Income Tax Assessment Act 1997 Subdivision 293-E

Income Tax Assessment Act 1997 Subdivision 293-F

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

Summary

Based on the information, the taxpayer will be able to claim deductions for their personal superannuation contributions made in the 20XX-YY and 20YY-ZZ income years, provided that all the conditions are satisfied.

Contributions made to a constitutionally protected fund (CPF) are neither concessional contributions nor non-concessional contributions. As such, the proposed contributions to the Fund will not count towards the taxpayer's concessional contributions cap or their non-concessional contributions cap for the 20XX-YY and 20YY-ZZ income years.

Contributions made to a CPF for which a tax deduction is claimed will count towards a taxpayer's 'low-tax contributed amounts' (LTCA) due to the operation of subsections 293-30(2) and 293-30(3) of the Income Tax Assessment Act 1997 (ITAA 1997).

The taxpayer's personal superannuation contributions made in the 20XX-YY and 20YY-ZZ income years are considered reportable superannuation contributions when determining their income for surcharge purposes as the taxpayer is entitled to claim a deduction under section 290-150 of the ITAA 1997 in respect of these contributions.

Detailed reasoning

Personal deductible superannuation contributions

A person can claim a deduction for personal contributions made to a superannuation fund for the purpose of providing superannuation benefits for themselves under section 290-150 of the ITAA 1997. However, the conditions in sections 290-155, 290-160 (if applicable), 290-165 and 290-170 of the ITAA 1997 must also be satisfied for the person to claim the deduction.

Maximum earnings as an employee condition

Subsection 290-160(1) of the ITAA 1997 states:

This section applies if:

(a) in the income year in which you make the contribution, you engage in any of these activities:

(i) holding an office or appointment;

(ii) performing functions or duties;

(iii) engaging in work;

(iv) doing acts or things; and

(b) the activities result in you being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (assuming that subsection 12(11) of that Act had not been enacted).

For those persons who fall under the requirements outlined above, subsection 290-160(2) of the ITAA 1997 prescribes that a deduction for personal contributions can only be claimed where the sum of their:

• assessable income

• reportable fringe benefits total and

• reportable employer superannuation contributions

attributable to the employment activities is less than 10% of the total of that person's assessable income, reportable fringe benefits total and reportable employer superannuation contributions. This calculation is referred to as the maximum earnings test.

The facts provided in this case indicate that the amounts attributable to employment related activities which the taxpayer will receive in the 20XX-YY and 20YY-ZZ income years will be less than 10% of the total assessable income, reportable fringe benefits and reportable employer superannuation contributions in each of those years.

Accordingly, the taxpayer will satisfy the maximum earnings test under section 290-160 of the ITAA 1997 for the 20XX-YY and 20YY-ZZ income years.

Complying superannuation fund condition

The condition in section 290-155 of the ITAA 1997 requires that where the contribution is made to a superannuation fund, it must be made to a complying superannuation fund for the income year of the fund in which the contribution is made.

In this instance, the taxpayer intends to make the personal contributions to the Fund and the SMSF. As both the Fund and the SMSF are complying superannuation funds, the condition in section 290-155 of the ITAA 1997 will be satisfied for both the 20XX-YY and the 20YY-ZZ income years.

Age-related conditions

Relevantly, under subsection 290-165(2) of the ITAA 1997, the ability to claim a deduction ceases for contributions that are made after 28 days from the end of the month in which the person making the contribution turns 75 years of age.

As the taxpayer will be less than 75 years of age during the 20XX-YY and 20YY-ZZ income years when the contributions will be made, the taxpayer will satisfy the age-related conditions for the contributions in the 20XX-YY and the 20YY-ZZ income years.

Notice of intent to deduct conditions

According to section 290-170 of the ITAA 1997, in order to deduct a contribution, the taxpayer is required to provide to the trustees of the Fund and the SMSF a valid notice, in the approved form, of their intention to claim a deduction. The notice must be given by the earlier of:

(a) the date the taxpayer lodges their income tax return for the income year in which the contribution is made; or

(b) the end of the following income year.

The taxpayer must also be given an acknowledgment of receipt of the notice by the trustees of the Fund and the SMSF.

A notice of intent to deduct for the taxpayer's contributions will not be valid if one or more of the following conditions in subsection 290-170(2) of the ITAA 1997 are satisfied:

(a) the notice is not in respect of the contribution;

(b) the notice includes all or part of an amount covered by a previous notice;

(c) when you gave the notice:

(i) you were not a member of the fund or the holder of the RSA;

or

(ii) the trustee or RSA provider no longer holds the contribution;

or

(iii) the trustee or RSA provider has begun to pay a superannuation income stream based in whole or part on the contribution;

(d) before you gave the notice:

(i) you had made a contributions splitting application... in relation to the contribution; and

(ii) the trustee or RSA provider had not rejected the application.

In relation to the proposed contributions in the 20XX-YY and 20YY-ZZ income years, provided that the taxpayer:

(a) gives valid notices of intent to the trustees of the Fund and the SMSF within the time frames previously discussed; and

(b) the trustees of the Fund and the SMSF duly acknowledge those notices;

it is accepted that section 290-170 of the ITAA will be satisfied.

As the taxpayer has already satisfied the conditions under sections 290-155, 290-160 and 290-165 of the ITAA 1997, satisfying the condition under section 290-170 of the ITAA 1997 will allow the taxpayer to claim a deduction for the proposed personal superannuation contributions in the 20XX-YY and 20YY-ZZ income years.

Deduction limits

The allowable deduction is limited under subsection 26-55(2) of the ITAA 1997 to the amount of assessable income remaining after subtracting all other deductions (excluding previous year's tax losses and any deductions for farm management losses) from a taxpayer's assessable income.

Thus a deduction for personal superannuation contributions cannot add to, or create, a loss.

According to the facts of this case, the deductions claimed by the taxpayer in relation to the proposed contributions will not add to or create a loss in either the 20XX-YY or 20YY-ZZ income year.

Contribution limits

It is noted that the Fund is a constitutionally protected fund (CPF). Subparagraph 291-25(2)(c)(iii) of the ITAA 1997 specifically excludes contributions made to a CPF from the definition of concessional contributions. This means that the taxpayer's proposed contributions to the Fund will not be concessional contributions.

In view of this, the proposed contributions to the Fund in the 20XX-YY and 20YY-ZZ income years will not count towards the taxpayer's concessional contributions cap for those income years.

Subparagraph 292-90(2)(c)(iv) of the ITAA 1997 specifically excludes 'a contribution made to a constitutionally protected fund (other than a contribution included in the contributions segment of your superannuation interest in the fund)' from the definition of a non-concessional contribution.

Subsection 307-220(1) of the ITAA 1997 defines the 'contributions segment of a superannuation interest' as:

so much of the value of the interest as consists of contributions made after 30 June 2007, to the extent that they have not been and will not be included in the assessable income of the superannuation provider in relation to the superannuation plan in which the interest is held.

However, the operation of subsection 307-220(2) of the ITAA 1997 provides that for a CPF, the only contributions that would be included in the contributions segment are contributions that would be non-concessional contributions if the fund was not a CPF.

Therefore, in the taxpayer's case, if we were to treat the Fund as if it were not a CPF, the proposed contributions in the 20XX-YY and 20YY-ZZ income years would be included in the assessable income of the Fund and therefore would not form part of the taxpayer's contributions segment.

Since the proposed contributions that the taxpayer intends to make to the Fund would not be part of the contributions segment of the taxpayer's superannuation interest in the Fund, the proposed contributions would not fall under the definition of a non-concessional contribution.

In view of this, the proposed contributions to the Fund in the 20XX-YY and 20YY-ZZ income years will not count towards the taxpayer's non-concessional contributions cap for those income years.

It is noted that the SMSF is not a constitutionally protected fund (CPF) and so the normal rules regarding contribution limits will apply.

The concessional contributions cap for the 20XX-YY income year and later income years is $35,000 for taxpayers aged 49 years or over on the last day of the previous income year.

Concessional contributions include all employer superannuation contributions and any personal contributions to the SMSF that was claimed as a tax deduction.

Therefore, as the taxpayer was over 49 years of age on 30 June 20XX, they will be able to claim a deduction up to the concessional contributions cap of $35,000 in the 20XX-YY income year. Similarly, the taxpayer will be able to claim a deduction up to the concessional contributions cap of $35,000 in the 20YY-ZZ income year.

If the taxpayer exceeds the cap, the excess concessional contributions will be included in the taxpayer's assessable income for that income year and taxed at their marginal tax rate.

Division 293 and low tax contributed amounts

Division 293 tax is paid by certain individuals whose income for surcharge purposes (other than reportable super contributions), plus their concessionally taxed super contributions (also known as low tax contributions for Division 293 purposes) are greater than $300,000.

Low tax contributions that attract Division 293 tax are defined in section 293-30 of the ITAA 1997 and include (but are not limited to):

• employer contributions (including compulsory super guarantee contributions and salary sacrificed amounts) paid to an accumulation interest

• personal super contributions that are tax deductible (most commonly claimed by self-employed people), and

• defined benefit contributions (for defined benefit interests)

The amount of low tax contributions for a financial year is worked out under:

• the general rules that apply to taxpayers with contributions made or amounts allocated to accumulation interests, and

• the special rules that apply to individuals with defined benefit interests

Where there is an accumulation interests in a constitutionally protected fund (CPF), low tax contributed amounts also includes contributions made to a CPF because the exemption for these types of contributions from being concessional contributions is disregarded for Division 293 tax purposes by the application of subsection 293-30(3) of the ITAA 1997.

As the taxpayer's proposed contributions to the Fund would have been concessional contributions if the Fund had not been a CPF, the proposed contributions will count towards the taxpayer's LTCA in both the 20XX-YY and 20YY-ZZ income years.

Income for surcharge purposes

The private health insurance tax offset is income tested. This means that if the taxpayer's income is higher than the relevant income threshold, the taxpayer may not be eligible to receive a rebate.

Income for surcharge purposes includes the following amounts:

• an individual's taxable income (including the net amount on which family trust distribution tax has been paid)

• an individual's reportable fringe benefits (as reported on your payment summary)

• an individual's total net investment losses (including both net financial investment losses and net rental property losses)

• an individual's reportable super contributions (including reportable employer super contributions and deductible personal super contributions).

A reportable superannuation contribution for an individual and an income year, as defined by section 995-1 of the ITAA 1997, means the sum of:

a) the individual's reportable employer superannuation contributions (if any) for the income year, and

b) the individual's deductions (if any) for personal superannuation contributions under Subdivision 290-C of the ITAA 1997 for the income year.

This amount is reduced (but not below zero) by the amount of any excess concessional contributions the individual has for the financial year corresponding to the income year.

Subdivision 290-C of the ITAA 1997 includes deductions for personal contributions under section 290-150 of the ITAA 1997.

It has been determined that the taxpayer is entitled to claim a deduction under section 290-150 of the ITAA 1997 in respect of proposed personal superannuation contributions in the 20WW-XX and 20YY-ZZ income years. Therefore, these contributions are considered reportable superannuation contributions when determining the taxpayer's income for surcharge purposes.

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