Edited version of private ruling

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Ruling

Subject: Deductibility of personal superannuation contributions

Question

Is the taxpayer eligible to claim a deduction for personal superannuation contributions made to a complying superannuation fund during income year X under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Advice/Answer

Yes, to the extent that it does not add to or create a loss.

This ruling applies for the following period

For the year ended 30 June 2009

The scheme commenced on

1 July 2008

Relevant facts and circumstances

In income year Y you ceased employment with your former employer.

You worked in your own business, providing services to a number of clients, for all of income year X and are registered for Goods and Services Tax.

During income year X, you received an amount from your former employer which related to salary/wages owing to you for income year Y.

In income year X, you made personal contributions to an Australian complying superannuation fund, (the Fund).

Your total assessable income, exempt income and reportable fringe benefits for income year X includes salary and wages, business income, annuities and superannuation income and dividends.

You have provided a written notice to the Fund which states your intention to claim a tax deduction in respect of the personal contributions made in income year X.

In income year W, the Fund acknowledged receipt of the notice of your intention to claim a tax deduction in respect of the personal contributions made in income year X.

The contributions were made for the provision of superannuation benefits for you or for your dependants in the event of your death.

You are over age 50 and under age 75.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 290-150.

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 Subsection 290-160(2).

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.

Income Tax Assessment Act 1997 Subsection 26-55(2).

Superannuation Guarantee (Supervision) Act 1992 Subsection 12(11).

Reasons for Decision

Summary

You are entitled to claim a deduction for superannuation contributions made in income year X provided the deduction does not add to or create a tax loss in that income year.

Detailed reasoning

Personal deductible superannuation contributions made in income year X

From 1 July 2007, 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, 290-165 and 290-170 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 you made the contribution.

In this case, you made personal superannuation contributions to a complying superannuation fund, the Fund, in income year X. Therefore the complying superannuation fund condition is satisfied.

Maximum earnings as an employee condition

Subsection 290-160(1) of the ITAA 1997 states:

This section applies if:

· in the income year in which you make the contribution, you engage in any of these activities:

· holding an office or appointment;

· performing functions or duties;

· engaging in work;

· doing acts or things; and

· 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).

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:

· your assessable income for the year;

· your reportable fringe benefits total for the income year.

Where a person is engaged in activities during the income year that would make them an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA) then they will need to satisfy this section in order to claim a deduction for their personal superannuation contributions. It should be noted that the level of superannuation support by an employer or another person is no longer a relevant factor under this condition.

The Commissioner has issued Taxation Ruling TR 2010/1 which deals with, among other matters, deductions for personal superannuation contributions. At paragraphs 57 and 58 of TR 2010/1, the Commissioner states:

Those persons who are engaged in an 'employment' activity in the income year in which they make a contribution need to meet an earnings test if they are to deduct their contribution.

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.

Furthermore, the Commissioner has given an example which refers to the 'maximum earnings test'. At paragraphs 88 and 89 of TR 2010/1 the Commissioner states:

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.

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.

In this case, you ceased employment with your former employer in income year Y. As such, you were not engaged in activities during income year X that would make you an employee for the purposes of the SGAA. Therefore, you are not required to meet the maximum earnings as an employee condition.

Hence, section 290-160 of the ITAA 1997 does not apply to you in income year X, that is, the year in which you made the personal superannuation contribution.

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 you are over age 50 and under age 75 when the contributions were made, you will satisfy the age-related conditions.

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

The trustee of the superannuation fund has accepted a written notice which states your intention to claim a superannuation deduction for personal superannuation contributions made in income year X. The trustee has given you a notice acknowledging receipt of your notice. Therefore, the conditions under section 290-170 of the ITAA 1997 have been satisfied.

Deduction limits

From 1 July 2007, the previous age based limits on deductions for personal superannuation contributions has been abolished. As a result a person can claim a full deduction for the amount of the contribution made.

However, 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 a taxpayer's assessable income. Thus a deduction for personal superannuation contributions cannot add to or create a loss.

Concessional contribution limits

From 1 July 2007, concessional contributions made to superannuation funds will be subject to an annual cap. Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction.

A person will be taxed on concessional contributions over the cap at a rate of 31.5%. The superannuation fund can be asked to release money to pay this excess contributions tax.

For people aged 50 or over, the annual concessional contributions cap is $100,000 for income year X.

Please note, from 1 July 2009, the concessional contributions cap was reduced. For a person 50 years of age or more the new concessional contributions cap is $50,000.

Conclusion

As you satisfy the conditions in sections 290-155, 290-165 and 290-170 of the ITAA 1997 and are not required to satisfy section 290-160, you will be entitled to claim a deduction of up to $100,000 for personal superannuation contributions made in income year X provided the deduction does not add to or create a tax loss in that income year.