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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1012805648199

Ruling

Subject: Personal deductible contributions

Question

Is an amount paid to your client under an income replacement insurance policy included in the maximum earnings as an employee condition when assessing their eligibility to deduct personal superannuation contributions?

Answer

No.

This ruling applies for the following period:

Income year ending 30 June 2015

The scheme commences on:

1 July 2014

Relevant facts and circumstances

During the 2014-15 income year your client, will be receiving the following anticipated income:

You have advised that during the 2014-15 income year, your client will not be engaged in any of the following activities:

Your client intends to make a personal superannuation contribution to a complying superannuation fund in the 2014-15 income year.

Your client is under 60 years old in the 2014-15 income year.

Relevant legislative provisions

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)

Reasons for decision

Summary

Your client will not be subject to the maximum earnings test under section 290-160 of the ITAA 1997 because your client will not be engaged in any employment activities during the 2014-15 income year.

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.

For the purposes of this case and to address the specific question you have raised, attention is focussed on section 290-160 of the ITAA 1997.

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:

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 operation of the maximum earnings test is discussed in Taxation Ruling TR 2010/1 Income tax: superannuation contributions. Relevantly, paragraphs 58 and 59 state that:

58. Those persons who have not engaged in an 'employment' activity in the income year in which they make a contribution, such as persons who although receiving workers' compensation payments are not employed at any time during the year, are not subject to the maximum earnings test. [emphasis added]

59. A person will be engaged in an 'employment' activity if they are engaged in an activity in the income year that results in them being treated as an employee for the purposes of the SGAA. The term 'engaged' is not defined and takes its ordinary meaning. One of several meanings given to engaged is 'busy or occupied; involved'. Another meaning is 'under an engagement' where the ordinary meaning of 'engagement' is given as 'under an obligation or agreement'

As reiterated in paragraph 58 of TR2010/1, where a person is not employed at any time during the year and is in receipt of workers compensation payments, they are not subject to the maximum earnings test.

The facts provided in this case indicate that your client has not been employed, nor is currently employed, in the relevant income year, and that he will not engage in any activities in the 2014-15 income year that would make them an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992.

Accordingly, your client will not be subject to the maximum earning test under section 290-160 of the ITAA 1997.

As your client is under 60 years old in the 2014-15 income year in which the intended contribution will be made, the age-related requirement of section 290-165 of the ITAA 1997 will be satisfied.

Whilst your client will not be subject to the maximum earning test under section 290-160 of the ITAA 1997 and will satisfy the age-related requirement of section 290-165 of the ITAA 1997, the conditions in sections 290-155 and section 290-170 of the ITAA 1997 must be satisfied for your client to claim a deduction in the 2014-15 income year.

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