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Edited version of your written advice
Authorisation Number: 1013133534692
Date of advice: 29 November 2016
Ruling
Subject: Deductibility of personal superannuation contributions
Question
For the purposes of section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997), is the foreign income earned by a person (the Taxpayer) included in their assessable income under subsection 290-160(2) of the ITAA 1997?
Answer
Yes
This ruling applies for the following period:
Income year ending 30 June 20YY
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
The Taxpayer is a resident of Australia for tax purposes.
The Taxpayer is employed by a foreign employer based overseas (the Foreign Employer).
The Taxpayer intends to make personal superannuation contributions of up to $30,000 to an Australian complying superannuation fund.
The Taxpayer's income from the Foreign Employer makes up 90% of their total income.
Relevant legislative provisions
Income Tax Assessment Act 1997 subsection 6-5(1)
Income Tax Assessment Act 1997 subsection 6-5(2)
Income Tax Assessment Act 1997 section 290-150
Income Tax Assessment Act 1997 section 290-155
Income Tax Assessment Act 1997 subsection 290-150(2)
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 section 290‑170
Reasons for decision
Summary
The Taxpayer's income from the Foreign Employer is included in their assessable income for the purposes of subsection 290-160(2) of the ITAA 1997.
Consequently, the Taxpayer cannot deduct any personal superannuation contributions made to an Australian complying superannuation fund in the 20XX-YY income year.
Detailed reasoning
Section 290-150 of the ITAA 1997 provides that an individual may deduct a personal superannuation contribution made to a superannuation fund for the purpose of providing superannuation benefits for themselves (or their dependents after their death).
However, subsection 290-150(2) of the ITAA 1997 states that the conditions in sections 290-155, 290-160 (if applicable), 290-165 and 290-170 must also be satisfied for an individual to deduct a contributions made in that income year.
Relevantly, subsection 290-160(1) of the ITAA 1997 provides that section 290-160 of the ITAA 1997 applies if:
(a) In the income year in which you make the contributions, 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 has not been enacted).
Employment activity condition
The employment activity condition in subsection 290-160(1) of the ITAA 1997 is discussed in Taxation Ruling TR 2010/1 Income Tax: superannuation contributions (TR 2010/1) where, at paragraphs 53 and 55, the Commissioner states:
53. An employee is a common law employee and any other person who is treated as an employee by section 12 of the SGAA.16 If a contribution for an employee is to be deductible, the employee must (among other requirements) satisfy the employment activity condition.17
55. To satisfy the employment activity condition, a common law employee must be either:
● engaged in producing the employer's assessable income; or
● an Australian resident who is engaged in the employer's business. 1
Based on the above, the Taxpayer is a common law employee of the Foreign Employer. Thus, the maximum earnings as an employee conditions in subsection 290-160(2) of the ITAA 1997 will apply to the Taxpayer.
Maximum earnings test
Subsection 290-160(2) of the ITAA 1997 provides that a personal superannuation contribution may only be deducted if less than 10% of the total of the following is attributable to employment activities.
(a) your assessable income for the year;
(b) your reportable fringe benefits for the income year;
(c) the total of your *reportable employer superannuation contributions for the income year.
*To find the definition of asterisked terms, see the Dictionary, starting at section 995-1.
Referring to the application of the maximum earnings test in section 290-160 of the ITAA 1997, at paragraphs 65 and 66 of TR 2010/1, as far as relevant, the Commissioner states:
65. In the application of the maximum earnings test, the relevant 'employment' activity need not be an activity in Australia. …'
66. …, the 'employment' income of an Australian resident employed overseas by a foreign employer will be counted in the maximum earnings test if the income is assessable income.
Assessable income
Income that is subject to tax is called assessable income. Subsection 6-5(1) of the ITAA 1997 provides that assessable income consists of both ordinary income and statutory income. Ordinary income is defined as income according to ordinary precepts; this includes any salary and wages earned.
Subsection 6-5(2) of the ITAA 1997 states that if an individual is an Australian resident, then their assessable income includes the ordinary income derived directly or indirectly from all sources, whether in or out of Australia during the income year.
In this case, the Taxpayer is an Australian resident for tax purposes. The income the Taxpayer earns from the Foreign Employer (the foreign income) must be included in their assessable income for the relevant income year. As such, foreign income is counted in the maximum earnings test in subsection 290-160(2) of the ITAA 1997.
Consequently, the Taxpayer will not be able to claim a deduction for any personal superannuation contributions made to an Australian complying superannuation fund in the 20XX-YY income year.
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