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Edited version of your written advice

Authorisation Number: 1012811390255

Ruling

Subject: Deductibility of personal superannuation contributions

Question

Does the maximum earnings as an employee condition in section 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to your client in the 2014-15 income year?

Answer

No.

This ruling applies for the following period:

Income year ending 30 June 2015.

The scheme commenced on:

1 July 2014.

Relevant facts and circumstances

Your client is less than 65 years old.

Your client receives income protection insurance payments.

The insurance provider is not issuing a PAYG payment summary in respect of the payments.

You have confirmed that your client has not worked in any capacity as an employee since the 2012-13 income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 290-150.

Income Tax Assessment Act 1997 Section 290-160.

Superannuation Guarantee (Administration) Act 1992 Section 12

All legislative references are to the ITAA 1997 unless otherwise indicated.

Reasons for decision

Summary

Your client is not engaged in activities that would result in them being considered an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992. Accordingly, the maximum earnings as an employee condition does not apply to your client.

Detailed reasoning

In accordance with section 290-150, a person can claim a deduction for personal contributions made to a superannuation fund for the purpose of providing superannuation benefits for themselves (or their dependants after their death).

However, an individual who wishes to deduct their personal contributions must satisfy a number of conditions, including the maximum earnings as an employee condition set out in sections 290-160.

In accordance with subsection 290-160(1), the maximum earnings as an employee condition 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 appointment;

    (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).

Maximum earnings as an employee test is considered by the Commissioner in Taxation Ruling TR 2010/1 (TR 2010/1). Relevantly, at paragraph 58 of TR 2010/1, the Commissioner states that 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.

Whilst the income protection payments your client receives are not workers' compensation payments, they are similar in nature to the compensation payments as they are not paid for the performance of work but rather to compensate the person for the loss of work. As such, income protection payments do not deem a recipient to be engaged in an 'employment' activity.

Further, you have confirmed that your client has not worked in any capacity as an employee since the 2012-13 income year.

Based on the above, the maximum earnings as an employee condition under section 290-160 does not apply to your client.

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