Edited version of your written advice

Authorisation Number: 1013098487805

Date of advice: 28 September 2016

Ruling

Subject: Deductibility of personal superannuation contributions

Question

Are the income protection payments received by the Taxpayer included for the purpose of the maximum earnings test under subsection 290-16(2) of the Income Tax Assessment Act 1997?

Answer

No

This ruling applies for the following period:

Income year ended 30 June 20YY

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The taxpayer is under 75 years of age.

The taxpayer commenced employment with the employer and began receiving partial income protection payments due to an illness.

The taxpayer terminated employment with the employer and began to receive full income protection payments.

During the 20XX-YY financial year, the taxpayer earned assessable income which consisted of:

• employment income (from a different employer)

• income protection payments

• bank interest

• dividends / trust distributions

• taxable amount of account-based pension

In the 20XX-YY income year the taxpayer made a $XX,XXX superannuation contribution to a complying superannuation fund with the intention of claiming a deduction for the full amount.

The taxpayer contends that all requirements for claiming a deduction for personal superannuation contributions will be satisfied.

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 Subsection 290-165(2)

Income Tax Assessment Act 1997 Section 290-170

Superannuation Guarantee (Administration) Act 1992

Reasons for decision

Summary

As the income protection payments were not received in connection with any employment activities in which the taxpayer engaged in the 20XX-YY income year, these payments will not be considered under the requirements of subsection 290-160(2) of the ITAA 1997.

In view of the above, and satisfying the other conditions relating to deductible personal contributions, the taxpayer can deduct their personal superannuation contributions made to the Fund in the 20XX-YY income year.

Detailed reasoning

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.

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 taxpayer made the contribution.

This condition is satisfied as in the 20XX-YY income year the taxpayer made a contribution to a complying superannuation fund (the Fund).

Maximum earnings as employee condition

According to subsection 290-160(1) of the ITAA 1997, the maximum earnings as employee condition 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).

As the taxpayer was engaged in part time employment activities during the 20XX-YY income year, the maximum earnings as employee condition under section 290-160 of the ITAA 1997 will apply.

Subsection 290-160(2) of the ITAA 1997 states:

To deduct the contribution, less than 10% of the total of the following must be attributable to the activities:

(a) your assessable income for the year;

(b) your *reportable fringe benefits total for the income year;

(c) the total of your *reportable employer superannuation contributions for the income year.

*To find definitions of asterisked terms, see the Dictionary, starting at section 995-1

In this case, the income protection payments are not attributable to the taxpayer's employment as an employee. While the income protection payments are paid to the taxpayer as a replacement for employment income they would have received from their prior employer, the payments are actually paid in accordance with an insurance policy by an entirely separate entity. In other words, there is no employment relationship attached to these payments and these payments do not result in the taxpayer being treated as an employee of either the prior employer or the separate paying entity.

From the information provided, less than 10% of the total assessable income was earned from employment activities. Hence, less than 10% of the total assessable income will be attributable to the Taxpayer's employment activities defined in subsection 290-160(1) of the ITAA 1997.

Age-related conditions

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 was under 75 years of age at all times in relation to the relevant income year, this condition is satisfied.

Notice of intent to deduct conditions

Section 290-170 of the ITAA 1997 requires a person to provide a valid notice of their intention to claim the deduction to the trustee of their superannuation fund. The notice must be given before the earlier of:

• the date the person lodges their income tax return for the income year in which the contribution was made; or

• the end of the income year following the year in which the contribution was made.

In addition, the person must also have been given an acknowledgement of the notice by the trustee of the relevant superannuation fund.

A notice will be valid as long as the following conditions apply:

• the notice is in respect of the contributions;

• the notice is not for an amount covered by a previous notice;

• at the time when the notice is given:

• the person is a member of the fund; or

• the trustee of the fund holds the contribution (for example, a notice will not be valid if a partial roll over of the superannuation benefit which includes the contribution covered in the notice has been made); or

• the trustee of the fund has not begun to pay a superannuation income stream based on the contribution;

• before the notice is given:

• a contributions splitting application has not been made in relation to the contribution; and

• the trustee of the fund has not rejected the application.

On the basis of the information provided, the above conditions will be satisfied by the taxpayer provided the notice of intent to deduct is supplied to the fund's trustee within the time frame stated above and the trustee acknowledges in writing receipt of that notice.

Deduction limits

The allowable personal superannuation 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.

ATO view documents

Taxation Ruling TR 2010/1 Income tax: superannuation contributions

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