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Ruling

Subject: Deduction for Personal Superannuation Contribution

Can your client claim a deduction in respect of a personal superannuation contribution for the 2009-10 income year under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes.

This ruling applies for the following period:

Year ended 30 June 2010.

The scheme commences on:

1 July 2009.

Relevant facts and circumstances

Your client is under 55 years of age.

Your client's employment with a previous employer ceased before the 2009-10 income year and all your client's leave entitlements had been previously paid out. Your client has ceased to represent the employer in any capacity.

Your client received workers' compensation benefits during the 2009-10 income year as a consequence of injuries suffered while they were working for the employer.

Your client's workers' compensation benefits were paid as an income stream. These benefits were not paid as a continuance of the employment with the previous employer. Your client does not have any connection with the employer after 30 June 2009.

Due to the extent of their injuries, your client will not return to the workforce.

Your client had no other employer, and was not engaged in any employment, throughout the entire 2009-10 income year. Your client also did not receive any superannuation guarantee contributions from an employer during this income year.

During the 2009-10 income year your client made a personal superannuation contribution to a complying superannuation fund as a member contribution.

Your client is prepared to provide a notice of intent to claim a deduction to the fund trustee in respect of this contribution.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 Section 290-150

Income Tax Assessment Act 1997 Subsection 290-150(2)

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 Paragraph 290-160(1)(a)

Income Tax Assessment Act 1997 Paragraph 290-160(1)(b)

Income Tax Assessment Act 1997 Subsection 290-160(2)

Income Tax Assessment Act 1997 Subsection 290-165(2)

Income Tax Assessment Act 1997 Section 290-170

Income Tax Assessment Act 1997 Section 290-175.

Reasons for decision

Summary

The maximum earnings test does not apply to your client in the 2009-10 income year, because your client was not engaged in an employment activity.

Your client can claim a deduction in respect of the contribution they made during this income year, provided the deduction does not add to or create a loss.

Detailed reasoning

Personal superannuation contributions made in the 2009-10 income year

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, all the applicable conditions in Subdivision 290-C of the ITAA 1997 must be satisfied for the person to be able to claim the deduction.

These conditions are explained in detail in Taxation Ruling TR 2010/1 (TR 2010/1) entitled Income Tax: superannuation contributions.

During the 2009-10 income year your client made a personal superannuation contribution to a complying superannuation fund, as a member contribution in order to obtain superannuation benefits.

However, subsection 290-150(2) of the ITAA 1997 provides that:

… the conditions in sections 290-155, 290-160 (if applicable), 290-165 and 290-170 must also be satisfied for you to deduct the contribution.

Complying superannuation fund condition

Section 290-155 of the ITAA 1997 states that:

If a contribution is made to a superannuation fund, it must be a complying superannuation fund for the income year of the fund in which you made the contribution.

As your client made their personal contribution into a complying superannuation fund, your client satisfies this requirement.

Maximum earnings as an employee condition

For those persons who are engaged in any 'employment' activities in an income year, a deduction can only be claimed where the sum of assessable income, reportable fringe benefits total, and (from 1 July 2009) reportable employer superannuation contributions attributable to the 'employment' activities is less than 10% of the total of the person's assessable income, reportable fringe benefits total and reportable employer superannuation contributions in the income year that the contribution is made. The term 'reportable employer superannuation contributions' includes salary sacrifice contributions made for the person's benefit in that year.

Subsection 290-160(1) of the ITAA 1997 operates to apply the maximum earnings test only if, in the income year in which the contribution is made, the person is engaged in any of the following activities (paragraph 290-160(1)(a)):

· holding an office or appointment (for example, a director of a company)

· performing functions or duties

· engaging in work

· doing acts or things, and

· the activities result in that person being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA) (paragraph 290-160(1)(b)).

The maximum earnings as employee condition does not apply to your client

The employment activity condition outlined in subsection 290-160(1) of the ITAA 1997 has two parts. To satisfy this condition, therefore, a taxpayer must both:

· engage in any of the employment activities specified in paragraph 290-160(1)(a) of the ITAA 1997, and

· as a result be treated as an employee for the purposes of the SGAA, as specified in paragraph 290-160(1)(b) of the ITAA 1997.

In TR 2010/1, the Commissioner discusses the operation of the maximum earnings as employee condition for persons who are receiving workers' compensation payments. In paragraphs 246 to 248, he states:

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

247. Those persons who have not engaged in an 'employment' activity in the income year in which they make a contribution are not subject to this earnings test. For example, a person who, although no longer employed, is receiving workers' compensation payments, is not subject to the maximum earnings test.

248. A person will be engaged in an 'employment' activity if they are engaged in an activity in the income year that results in them being treated as an employee for the purposes of the SGAA. The term 'engaged' is not defined and takes its ordinary meaning. One of several meanings given to engaged is 'busy or occupied; involved'. Another meaning is 'under an engagement' where the ordinary meaning of 'engagement' is given as 'under an obligation or agreement.

The facts show that your client was not engaged in an employment activity in the 2009-10 income year and, consequently, the maximum earnings as employee condition not does apply to your client.

Therefore, section 290-160 of the ITAA 1997 does not apply to your client in the 2009-10 income year.

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 your client was under 55 years of age when the personal contribution was made, this requirement is satisfied.

Notice of intent to deduct conditions

Section 290-170 of the ITAA 1997 provides that your client must give to the trustee of the complying superannuation fund (the fund trustee) a valid notice, in the approved form, of his intention to claim a deduction in respect of the contribution, and must also have been given an acknowledgment of receipt of the notice by the fund trustee.

A notice will be valid as long as the following conditions are satisfied:

· the notice is in respect of the contribution

· the notice is not for an amount covered by a previous notice

· at the time when the notice is given

o your client is a member of the fund

o the fund trustee 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)

o the fund trustee has not begun to pay a superannuation income stream based on the contribution, or

· before the notice is given:

o a contributions splitting application has not been made in relation to the contribution, and

o the fund trustee has not rejected the application.

Your client will provide a valid notice of their intention to claim a deduction to the fund trustee in respect of the contribution. Under section 290-170 of ITAA 1997, the trustee is required to acknowledge your client's notice without delay.

Therefore, it is accepted that your client will give a valid section 290-170 notice to the fund trustee, and that the fund trustee will duly acknowledge the receipt of this notice.

Accordingly, the notice of intent to deduct conditions under section 290-170 of ITAA 1997 will be satisfied in this instance.

Deduction limited by amount specified in notice

Subsection 290-175 of the ITAA 1997 states that the deduction cannot be more than the amount covered by the notice given under section 290-170 of the ITAA 1997.

Your client intends to claim to claim a deduction for the full amount of the contribution they made during the 2009-10 income year. Thus, it is accepted that the amount of the deduction that will be claimed will not exceed the amount specified in his section 290-170 notice. Therefore, your client will also satisfy this requirement.

Deduction limits

From 1 July 2007, the previous age-based limits on deductions for personal superannuation contributions have been abolished. As a result, a person can now claim a full deduction for the amount of the superannuation 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 years tax losses and any deductions for farm management losses) from a taxpayer's assessable income. Therefore, a deduction for personal superannuation contributions cannot add to or create a loss.

Deduction for the personal contribution made in the 2009-10 income year

On the facts provided, it is accepted that your client will satisfy all the required conditions in Subdivision 290-C of the ITAA 1997, in respect of the contribution your client made to a superannuation fund in the 2009-10 income year. Therefore, your client can claim a deduction for the full amount of the contribution, provided the deduction does not add to or create a loss in this income year. This amount will be a concessional contribution in the 2009-10 financial year, and will be counted towards your client's annual concessional contributions cap for this financial year.