Edited version of private ruling

Authorisation Number: 1011697922227

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Ruling

Subject: Personal superannuation contributions

Question:

Can you claim a tax deduction for personal superannuation contributions in the 2010-11 income year under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer: Yes.

This ruling applies for the following period:

Year ending 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You are between 50 and 75 years of age and currently working part-time due to a health condition.

Your health condition is not attributable to your former full time employment or your current part-time employment.

In addition to income from part-time employment you are also in receipt of income protection insurance benefits.

You have been in receipt of the income protection insurance benefits (the benefits) for several years as, due to your health condition, you have not been able to work full time. You have held personal income protection with an insurance company (the Insurer) for over five years.

The benefits received by you are from income continuation policies held in your name with the Insurer for which you pay the premiums.

You intend to make a personal superannuation contribution in the 2010-11 income year to a public superannuation fund (the Fund) which is a complying superannuation fund.

You intend to make a contribution to your account in the Fund and claim this as a deduction in the 2010-11 income year.

You also have a separate account in the Fund from which you intend to draw an allocated pension.

Your contribution to the Fund is to provide you with superannuation benefits or your dependants in the event of your death.

You have provided details of your total assessable income for the 2010-11 income year and more that 90% of your total assessable income is from your income protection policies and the remainder is from wages as an employee.

Assumptions

You have been advised that the following assumptions will be made in issuing the Notice of Private Ruling:

· you will provide a written notice to the trustee of the Fund under section 290-170 of the Income Tax Assessment Act 1997 (ITAA 1997) stating that you intend to claim a tax deduction in respect of the concessional contributions made in the 2010-11 income year;

· the trustee of the Fund to which the concessional contributions are to be made will provide a written notice for the 2010-11 income year under section 290-170 of the ITAA 1997 acknowledging receipt of your notice; and

· any deduction for personal superannuation contributions claimed by you will not add to or create a loss.

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 Subsection 290-160(2).

Income Tax Assessment Act 1997 Subsection 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 (Administration) Act 1992

Reasons for decision

Summary

On the basis of the information provided you are entitled to claim a deduction in your tax return for the 2010-11 income year for personal contributions that will be made by you in that year to a complying superannuation fund, provided the deduction does not add to or create a tax loss in that income year.

Detailed reasoning

Deduction for personal superannuation contribution

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 Income Tax Assessment Act 1997 (ITAA 1997). However, the conditions in sections 290-155, 290-160, 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 contribution is made.

In this case, you satisfy this condition as you intend to make a contribution to a superannuation fund (the Fund) that will be a complying superannuation fund in the 2010-11 income year.

Maximum earnings as employee condition

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

This section 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).

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.

Where the person engages in any 'employment' activities in the income year a deduction can only be claimed where the assessable income, reportable fringe benefits total, and (from 1 July 2009) reportable employer superannuation contributions attributable to the 'employment' activities are less than 10% of the person's total assessable income, reportable fringe benefits total, and reportable employer superannuation contributions in the income year that the contribution is made. Further, if the person has more than one period of engaging in 'employment' activities in an income year, the assessable income, reportable fringe benefits total, and reportable employer superannuation contributions attributable to each period of 'employment' is aggregated.

The Commissioner has issued Taxation Ruling TR 2010/1 (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:

57. 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.

58. 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.

In your case, the facts show that you are an employee during the 2010-11 income year as you are in part-time employment. Therefore, you are required to meet the maximum earnings as an employee condition, that is, income attributable to your 'employment activities' must be less than 10% of your total assessable income, reportable fringe benefits and reportable employer superannuation contributions for the 2010-11 income year.

You have stated that your gross assessable income for the 2010-11 income year will mainly be from your income protection policies.

As more than 10% of your assessable income in the 2010-11 income year will be from income protection policies, it must be determined whether the amounts received by you from those policies (the income protection payments) is 'attributable to' employment activities.

The term 'attributable to' is not defined in subsection 290-160(2) of the ITAA 1997. However, the courts have considered the meaning of the term in a number of different cases. For example, in determining whether the plaintiff's loss of employment was 'attributable to' the provisions of the Local Government Act 1972 (UK), Justice Donaldson in Walsh v. Rother District Council [1978] ICR 1216 at 1220; [1978] 1 All ER 5101 at 5104 stated:

These are plain English words involving some causal connection between the loss of employment and that to which the loss is said to be attributable. However, this connection need not be that of a sole, dominant, direct or proximate cause and effect. A contributory causal connection is quite sufficient.

In Repatriation Commission v. Law (1980) 31 ALR 140; (1980) 47 FLR 57; [1980] FCA 92, the Full Federal Court said:

It seems clear the expression 'attributable to' in each case involves an element of causation. The cause need not be the sole or dominant cause: it is sufficient to show 'attributability' if the cause is one of a number of causes provided it is a contributing cause ...

In McIntosh v. Federal Commissioner of Taxation (1979) 79 ATC 4325; (1980) 10 ATR 13; (1979) 45 FLR 279; (1979) 25 ALR 557 the Full Federal Court considered whether there was a causal connection between a commutation payment and the employee's termination of employment. Justice Brennan said that:

Though the language of causation often contains the seeds of confusion, I apprehend his Honour to hold the required nexus to be (at least) that the payment would not have been made but for the retirement.

In the context of income being attributable to employment activities the above shows that there needs to be a causal link.

In the case of 'attributability' in workers' compensation and policies covering loss of employment, paragraph 259 in TR 2010/1 states:

…'employment' activities of the recipient are not the direct or proximate cause of workers' compensation payments and like payments such as the proceeds of an insurance policy covering loss of employment income. Rather, the direct or proximate cause of the payments is the injury suffered during the course of their employment activities. However, the injury would never have arisen but for those activities. Therefore, there is a contributory cause or connection between the 'employment' activities and the payments to show 'attributability' within the meaning of subsection 290-160(2). (emphasis added)

In your case the income protection payments received by you are the result of a medical condition which did not arise from your past or present employment activities. Accordingly, it cannot be held that the condition would never have arisen but for those activities or that there is a contributory cause between employment activities and you receiving the income protection payments.

In view of the above and the facts provided, it is considered that you will satisfy the requirements that are prescribed under section 290-160 of the ITAA 1997.

Age related conditions

Section 290-165 of the ITAA 1997 requires a taxpayer to have made the contribution before the day that is 28 days after the end of the month in which they turn 75 years of age.

This condition is satisfied when you make the contribution as you will be under the age of 75 for the entire 2010-11 income year.

Notice of intent to deduct conditions

Section 290-170 of the ITAA 1997 requires a taxpayer to provide a valid notice of their intention to claim the deduction to the trustee of their superannuation fund (the trustee) or the provider of the RSA (the provider). The notice must be given by the earlier of the date the taxpayer lodges their income tax return or the end of the income year following the year in which the contribution was made. The taxpayer must also have been given an acknowledgement of the notice by trustee or the provider.

A notice will not be valid if one or more of the following conditions in subsection 290-170(2) of the ITAA 1997 are satisfied:

(a) the notice is not in respect of the contribution;

(b) the notice includes all or part of an amount covered by a previous notice;

(c) if, at the time when the notice is given:

the taxpayer was not a member of the fund or the holder of the RSA; or

the trustee or RSA provider no longer holds the contribution (for example, where a partial roll-over of the superannuation benefit which includes the contribution covered in the notice has been made); or

the trustee or RSA provider has begun to pay a superannuation income stream based on the contribution;

(d) before the notice is given:

a contributions splitting application is made in relation to the contribution; and

the trustee or RSA provider has not rejected the application.

In your case it is assumed that you intend to provide a written notice to the trustee or the provider stating your intention to claim a deduction for the personal superannuation contribution. It is also assumed the you will obtain a written notice from the trustee or the provider acknowledging your intention to claim a deduction for the personal superannuation contribution. This condition will be satisfied when you have taken this action.

Deduction Limits

The previous age based limits on deductions for personal superannuation contributions was abolished from 1 July 2007, and taxpayers can now claim a full deduction for the amount of the contribution.

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.

Limits on concessional contributions

From 1 July 2007, there is a limit on the amount that can be contributed into superannuation in respect of a taxpayer for an income year that will be concessionally taxed.

One type of contribution is known as a concessional contribution. Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a self-employed person.

In the 2010-11 income year, the concessional contributions cap (the cap) is $25,000. However, an increased cap applies until 30 June 2012 for people aged 50 years or over (the annual cap for these people is $50,000). If a person has more than one fund, all concessional contributions made to all the person's funds are added together and count towards the cap. This cap is not indexed.

As you are over 50 years of age, an amount of $50,000 is capable of being paid as concessional contributions to a superannuation fund in the year ending 30 June 2011. However, it should be noted, as concessional contributions include employer contributions, any contributions made by your employer on your behalf would form part of the $50,000 cap.

Further, a person will be taxed on concessional contributions over the $50,000 cap at a rate of 31.5%. The superannuation fund can be asked to release money to pay this excess contributions tax.

Conclusion:

Based on the assumptions and facts previously noted, you satisfy the requirements to claim a deduction under section 290-150 of the ITAA 1997 for personal contributions made in the 2010-11 income year.