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Edited version of your written advice
Authorisation Number: 1051245790659
Date of advice: 4 July 2017
Ruling
Subject: Deductibility of Personal Superannuation Contributions
Question
Can the Taxpayer claim a deduction for proposed personal superannuation contributions to be made to their superannuation fund in the 2017-18 income year if they meet the work test?
Answer
Yes
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
The Taxpayer is under the age of 75.
The Taxpayer is a member of a Commonwealth Fund (the Fund).
The Taxpayer receives a defined benefits pension from the Fund.
The Taxpayer is also a member of a Self-Managed Superannuation Fund (SMSF).
The Taxpayer must transfer funds from their SMSF pension account into an accumulation account in order to meet the $1.6 million superannuation cap from 1 July 2017.
The Taxpayer intends to make a contribution to the SMSF with a valid notice of intent to claim a deduction for the proposed personal contributions to be made for the 2017-18 income year. In response you expect to receive an acknowledgement from the SMSF for this notice.
Assumption(s)
None.
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 290-165.
Income Tax Assessment Act 1997 section 290-170.
Income Tax Assessment Act 1997 section 290-175.
Superannuation Industry (Supervision) Regulations 1994 Subregulation 7.04
Reasons for decision
Summary
The Taxpayer can claim a deduction for the $25,000 superannuation contribution they intend to make in the 2017-18 income year if all the conditions of section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997) will be satisfied.
Detailed reasoning
Personal contributions deduction
A person can claim a deduction for personal contributions made to their superannuation fund for the purposes of providing superannuation benefits for themselves under section 290-150 of the ITAA 1997.
However, subsection 290-150(2) of the ITAA 1997 requires that the conditions in sections 290-155, 290-165 and 290-170 must all be satisfied in order to claim a deduction as a contribution.
Complying superannuation fund condition
Section 290-155 of the ITAA 1997 requires that where a contribution is made to a superannuation fund, the fund must be a complying superannuation fund for the income year in which the contribution is made.
The Taxpayer is a member of a SMSF and intends to make their contributions into the SMSF. The SMSF is regulated by the Australian Taxation Office (ATO), and is a complying superannuation fund.
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 contributions turns 75 years of age. The Taxpayer is under the age of 75 and therefore satisfies the age-related conditions.
Notice of intent to deduct
In order to be able to claim a deduction, section 290-170 requires that a valid notice, in the approved form, must be provided to your fund trustee.
Subsection 290-170(1) of the ITAA 1997 requires that a valid notice, in the approved form, must be provided to your fund trustee by the earlier of:
● The day on which you lodge your income tax return for the income year in which you make a contribution; or
● The end of the income year following the year in which the contribution is made (being, in this instance, the 2017-18 and 2018-19 income years respectively).
Subsection 290-170(1)(c) of the ITAA 1997 requires that the trustee must provide an acknowledgement of their receipt of the contribution made by you.
Subsection 290-170(2) of the ITAA 1997 also requires that the following conditions be satisfied for a notice of intent to deduct to be valid:
● The notice be in respect of the contribution;
● The notice is not for an amount covered by a previous notice;
● At the time the notice is given, you are:
● A member of the fund; or
● The fund trustee holds the contribution;
● Before the notice is given:
● A contributions splitting application has not been made in relation to the contribution; and
● The fund trustee has not rejected the contribution.
The Taxpayer has advised that they intend to provide a valid notice of intent to claim a deduction to the Fund for the contributions made.
Provided that the notice is lodged before your income tax return is lodged or by the end of the income year following that in which the contributions were made, and the trustee duly acknowledges receipt of your notice, the conditions in section 290-170 of the ITAA 1997 will be satisfied.
Deduction limits
Section 290-175 of the ITAA 1997 provides that the deduction cannot be more than the amount specified in the notice of intent to deduct a contribution.
Provided the amount of the deduction you intend to claim does not exceed the amount specified in the notice of intent to claim a deduction, you will satisfy this requirement.
The allowable deduction is also 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.
Thus a deduction for personal superannuation contributions cannot add to, or create, a loss.
Acceptance of contributions by a regulated superannuation fund
Subregulation 7.04 of the Superannuation Industry (Supervision) Regulations 1994 (Cth) (SISR 1994) limits the circumstances in which a superannuation fund may accept contributions. A superannuation fund may only accept a contribution from a member between the ages of 65 and 75 if the fund member satisfies the 'work test’.
Work test
The work test requires that, for the financial year in which a contribution is made, the fund member must have been gainfully employed on at least a part time basis. To satisfy these requirements a fund member must have worked for at least 40 hours during a consecutive 30 day period for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.
To meet the definition of 'gainfully employed’ an individual must be engaged in a genuine arrangement for the purpose of earning an income. Thus, the work test is not met if an individual is engaged as a volunteer, is doing unpaid work or is managing their own investments.
Conclusion
Provided you satisfy all the conditions required by section 290-150 of the ITAA 1997, you will be able to claim a deduction in the 2017-18 income year for the personal contributions you intend to make to the Fund in those income years.
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