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Edited version of your written advice

Authorisation Number: 1012838916077

Date of advice: 17 July 2015

Ruling

Subject: Deductibility of personal superannuation contributions - maximum earnings test

Question

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

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, the taxpayer, received income from the following sources:

The taxpayer was not employed during the 2014-15 income year

The taxpayer has made a personal superannuation contribution to a superannuation fund 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 Section 290-165

Income Tax Assessment Act 1997 Section 290-170

Superannuation Guarantee (Administration) Act 1992

Reasons for decision

Summary

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

The condition under section 290-160 of the ITAA 1997 is known as the maximum earnings test and is only applicable in certain situations.

Maximum earnings test

According to subsection 290-160(1) of the ITAA 1997, the maximum earnings test only 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).

The application 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'

Furthermore, TR 2010/1 provides an example which refers to the 'maximum earnings test'. Paragraphs 88 and 89 of TR 2010/1 state:

88. Caitlin terminates her employment with Bling Pty Ltd on 30 June 2009 and was paid unused long service leave and annual leave on 3 July 2009. Caitlin made a contribution of $5,000 to her complying superannuation fund on 9 July 2009. Caitlin was not engaged in any employment activities for the 2009-10 income year.

89. As Caitlin was not engaged in any employment activities in the 2009-10 income year, she does not need to meet the earnings test in relation to her $5,000 contribution.

The facts provided in this case indicate that the taxpayer has not engaged 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, the taxpayer will not be subject to the maximum earnings test under section 290-160 of the ITAA 1997 in the 2014-15 income year.

Other conditions

As the taxpayer was not required to satisfy section 290-160 of the ITAA 1997, the taxpayer will be able to claim a deduction for their personal superannuation contribution in the 2014-15 income year if the conditions under sections 290-155, 290-165 and 290-170 of the ITAA 1997 are satisfied.

In other words, the taxpayer will be able to claim a deduction if:

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