Edited version of private advice

Authorisation Number: 1013037807416

Date of advice: 23 June 2016

Ruling

Subject: Deductibility of superannuation contributions

Question

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

Answer

No.

This ruling applies for the following periods:

Income Year ended 30 June 2016

The scheme commences on:

1 July 2015

Relevant facts and circumstances

The client is 67 years of age.

The client is a member of a complying superannuation fund (The Fund).

(The Fund) is a constitutionally protected fund (CPF).

The Fund is an accumulation fund that allows members to accumulate untaxed benefits of up to a certain amount and still be concessionally taxed.

The client intends to make a contribution to The Fund in the 2015-16 income year.

The client intends to provide the trustees of The Fund with written notices of intent to claim a deduction for the personal contribution to be made prior to 30 June 2016, and accordingly expects to receive acknowledgement from The Fund.

The client satisfies all other conditions required to claim a deduction.

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 section 290-165

Income Tax Assessment Act 1997 section 290-170

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)

Reasons for decision

Summary of decision

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 client's concessional contributions cap or their non-concessional contributions cap for the 2015-16 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 Income Tax Assessment Act 1997 (ITAA 1997). However, the conditions in sections 290-155, 290-160 (if applicable), 290-165 and 290-170 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:

1. in the income year in which you make the contribution, you engage in any of these activities:
   1. holding an office or appointment;
   2. performing functions or duties;
   3. engaging in work;
   4. doing acts or things; and
2. 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 and reportable employer superannuation contributions. This calculation is referred to as the maximum earnings test.

Accordingly, the client will satisfy the maximum earnings test under section 290-160 of the ITAA 1997 for the 2014-15 and 2015-16 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 person made the contribution.

In this instance, the client intends to make a personal contribution to the Fund. As the Fund is a complying superannuation fund, the condition in section 290-155 of the ITAA 1997 will be satisfied for the 2015-16 income year.

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 client is 67 years of age he will be under 75 years of age during the 2015-16 income year when the contribution will be made. Therefore the client will satisfy the age-related conditions for the contributions in both the 2014-15 and 2015-16 income years.

Notice of intent to deduct conditions

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

• the date the client lodges his income tax return for the income year in which the contribution is made; or
• the end of the following income year.

The client must also be given an acknowledgment of receipt of the notice by the trustees of the Fund.

A notice of intent to deduct for the client'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:

1. the notice is not in respect of the contribution;
2. the notice includes all or part of an amount covered by a previous notice;
3. when you gave the notice:
   1. you were not a member of the fund or the holder of the RSA; or
   2. the trustee or RSA provider no longer holds the contribution; or
   3. the trustee or RSA provider has begun to pay a superannuation income stream based in whole or part on the contribution;
4. before you gave the notice:
   1. you had made a contributions splitting application... in relation to the contribution; and
   2. the trustee or RSA provider had not rejected the application.

In relation to the proposed contribution in the 2015-16 income year, provided the client:

• gives valid notices of intent to the trustees of the Fund within the time frames previously discussed; and
• the trustees of the Fund duly acknowledge those notices;

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

As the client has already satisfied the conditions under sections 290-155, 290-160 and 290-165 of the ITAA 1997, satisfying the conditions under section 290-170 of the ITAA 1997 will allow the client to claim a deduction for the proposed personal superannuation contribution made in the 2015-16 income year.

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 the client's assessable income.

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

Contribution limits

It is noted that the Fund is a 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 client's contribution to the Fund will not be concessional contribution.

In view of this, the contributions made to the Fund in the 2015-16 income year will not count towards the client's non-concessional contributions cap for the income year.

Subparagraph 292-90(2)(c)(iv) of the ITAA 1997 specifically excludes 'a contribution made to a CPF (other than a contribution included in the contributions segment of the 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 client's case, if the Fund as treated as if it was not a CPF, the contributions in the 2015-16 income year would be included in the assessable income of the Fund and therefore would not form part of the client's contributions segment.

Hence, the contributions segment of the client's superannuation interest in the Fund would therefore be nil.

Since the contributions the client made to the Fund are not part of the contributions segment of the client's superannuation interest in the Fund, the contributions do not fall under the definition of a non-concessional contribution.

In view of this, the contributions to the Fund in the 2015-16 income year do not count towards the client's non-concessional contributions cap for the income year.

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