Edited version of private ruling

Authorisation Number: 1011701773212

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Ruling

Subject:

Deductibility for personal superannuation contributions

Questions

1. Can you make personal superannuation contributions to a complying superannuation fund (the Fund), having reached age 65?

2. Can you claim a deduction for superannuation contributions made to a complying superannuation fund during the 2010-11 income year under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)?

3. Will the 'bring forward' provision under subsection 292-85(4) of the ITAA 1997 be triggered where contributions are made after you have reached age 65?

4. Is any part of a taxable component of a pension payment included in your assessable income?

Advice/Answer

1. This issue does not relate to a relevant provision, therefore the Commissioner is unable to rule.

2. Yes.

3. No.

4. Yes.

This ruling applies for the following period

For the year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

· You ceased full-time employment over five years ago.

· You are in receipt of a pension, paid fortnightly, which includes a taxable component - untaxed element.

· In the 2010-11 income year you were engaged in temporary employment for more than 100 hours over a three week period for an employer.

· The employer made employer superannuation contributions to your account with a superannuation fund.

· Your have estimated your total assessable income and reportable fringe benefits for the 2010-11 income which includes salary & wages, rental income, a pension and bank interest.

· You intend to sell some real estate and contribute the profit on the sale to provide superannuation benefits for your future retirement.

· You have advised that on the sale of the real estate you will make a capital gain. As the real estate has not yet been sold you cannot provide an amount. If the real estate is sold in the 2010-11 income year the capital gain amount will be included in your assessable income.

· You made superannuation contributions to a complying superannuation fund (the Fund) in the 2009-10 income year and claimed a tax deduction in respect of those contributions.

· In the 2010-11 income year, you intend to make contributions to the Fund and claim a tax deduction in respect of those contributions.

· You would like to maximise the amount of non-concessional contributions and, if eligible, will utilise the bring forward provisions and make contributions exceeding $150,000 to the Fund for the 2010-11 income year and make further contributions in the 2011-12 income year.

· You are over the age of 65 years and under the age of 75 years at all times during the 2010-11 income year.

Assumptions

· You have been advised and agree with the following assumptions being made in issuing the Notice of Private Ruling:

· the Fund will accept your contributions as you will be gainfully employed in the 2010-11 income year; and

· you will provide a written notice to the trustee of the Fund in accordance with section 290-170 of the ITAA 1997 stating that you intend to claim as a tax deduction in respect of the concessional contributions made in the 2010-11 income year and that in providing this notice will satisfy all the requirements of section 290-170.

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 Section 290-155.

Income Tax Assessment Act 1997 Section 290-160.

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 Section 292-80.

Income Tax Assessment Act 1997 Subsection 292-85(2).

Income Tax Assessment Act 1997 Subsection 292-85(3).

Income Tax Assessment Act 1997 Subsection 292-85(4).

Income Tax Assessment Act 1997 Section 301-10.

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

Superannuation Industry (Supervision) Act 1993 .

Superannuation Industry (Supervision) Regulations 1994 Regulation 7.04.

Taxation Administration Act 1953 Division 359 of Schedule 1.

Reasons for decision

Issue 1

Summary

This issue does not relate to a relevant provision, therefore the Commissioner is unable to rule.

Detailed reasoning

The Commissioner can only provide a private ruling in response to a valid application. For the following reason we will not be making your private ruling in respect of the Fund accepting contributions made in respect of a member who has reached the age of 65 but not age 70.

Division 359 of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that a private ruling is a written statement of the Commissioner's opinion of how a relevant provision applies, or would apply, to a particular entity in relation to a specified scheme. The provisions that are relevant for rulings are those about the following:

(a) income tax

(b) Medicare levy

(c) fringe benefits tax

(d) franking tax

(e) withholding tax

(f) mining withholding tax

(g) the administration or collection of those taxes

(h) a grant or benefit mentioned in section 8 of the Product Grants and Benefits Administration Act 2000, or the administration or payment of such a grant or benefit.

The issue raised in your request for a private ruling relates to the application of the Superannuation Industry (Supervision) Act 1993 (SIS Act) and the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations). This is not a relevant provision for the purposes of the TAA.

The SIS Act and SIS Regulations are administered by the Commissioner only so far as they relate to self managed superannuation funds (SMSFs). Authority to make decisions under these legislative provisions, as they relate to non-SMSFs rests with the Australian Prudential Regulation Authority (APRA) or subject to Australian federal, state or territory governments' supervision.

The Fund is not an SMSF, and is not subject to Tax Office supervision.

While a private ruling cannot be given on the matter submitted in your application, the following general advice is offered which, whilst not binding on the Commissioner, the Tax Office will stand by and will not depart from unless:

· the law has changed since the advice was given;

· a final court decision has affected our interpretation of the law since the advice was given; or

· for any reason, the advice is no longer considered appropriate - for example, if commercial practice has changed, the advice has been exploited in an abusive and unintended way or the advice is found on reconsideration to be wrong in law.

Acceptance of contributions

Under the SIS Act regulation 7.04 of the SIS Regulations, sets out the circumstances under which a regulated superannuation fund can accept contributions for a member.

For a fund to accept a contribution made in respect of a member who has reached the age of 65 but not age 70, the member must be gainfully employed on at least a part-time basis during the financial year in which the contributions are made.

For the purposes of the above, mandated contributions are:

· Superannuation Guarantee (SG) contributions;

· SG shortfall components;

· award contributions made by or on behalf of an employer under an industrial award; and

· payments from the Superannuation Holding Account Reserve.

Under subregulation 1.03(1) of the SIS Regulations 'gainfully employed' means:

employed or self employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.

In respect of part-time gainful employment, a person must be gainfully employed for at least 40 hours in a period of not more than 30 consecutive days.

Passive income such as dividends, interest, pensions, the letting of properties, et cetera would not fall within the meaning of 'gain or reward'. Therefore, receipt of such income would not ordinarily constitute gainful employment.

Issue 2

Summary

You are entitled to claim a deduction for the concessional contributions made in the 2010-11 income year up to the concessional contributions cap, provided the deduction does not add to or create a tax loss in that income year.

You are not eligible to use the bring forward provisions as the bring forward must be triggered no later than the year in which you turn 65 years of age. However, you can make contributions up to your non-concessional contributions cap of $150,000 for the 2010-11 income year.

The taxable component of your pension is included in your assessable income.

Detailed reasoning

Personal deductible 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, 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 have advised that personal superannuation contributions will be made to a complying superannuation fund (the Fund), in the 2010-11 income year. 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:

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:

your assessable income for the year;

your reportable fringe benefits total for the income year;

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 together 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.

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 the 10% rule in order to claim a deduction for their personal superannuation contributions.

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 this case, you have estimated your total assessable income, reportable fringe benefits and reportable employer superannuation contributions for the 2010-11 income year which includes income from employment.

Your estimated assessable income, reportable fringe benefits and reportable employer superannuation contributions attributable to the activities that result in you being treated as an employee for the purposes of the SGAA, will be less than 10% of your total assessable income for the 2010-11 income year.

It is noted you have not provided the amount of your anticipated capital gain to be included in your assessable income. However, by including the capital gain in your assessable income, the percentage of your assessable income received from your employment activities will be further reduced. Whether or not the capital gain amount is included in your assessable income the 10% rule will still be satisfied.

Therefore, you will satisfy the maximum earnings as an employee condition under section 290-160 of the ITAA 1997.

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 will be under age 75 when the proposed contributions are to be made, you 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. The notice must be given before the earlier of:

the date you lodge your income tax return for the income year in which the contribution was made; or

the end of the income year following the year in which the contribution was made.

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

A notice will be valid as long as the following conditions apply:

· the notice is in respect of the contributions;

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

· at the time when the notice is given:

o you are a member of the fund or the holder of the RSA;

o the trustee or RSA provider 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 trustee or RSA provider 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 trustee or RSA provider has not rejected the application.

Based on the assumptions that the trustee of the fund will accept a written notice of your intention to claim a deduction for personal contributions made in the 2010-11 income year and acknowledge receipt of your notice, section 290-170 of the ITAA 1997 will be satisfied.

Contribution 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 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.

Contributions made to superannuation funds are now subject to an annual cap. These are:

· the concessional contributions cap

· the non-concessional contributions cap

· the transitional contributions cap

The concessional contributions cap for the 2010-11 income year is $25,000.

A transitional concessional contributions cap of $50,000 will apply for individuals aged 50 years or over on 30 June 2011.

Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a person.

Therefore, as you are over age 50 in the 2010-11 income year, the transitional concessional contributions cap of $50,000 will apply. This amount is not indexed.

Conclusion

Based on the assumptions previously noted and the fund accepting your contributions, you will satisfy the conditions in sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997 therefore you will be entitled to claim a deduction for your personal superannuation contributions made in the 2010-11 income year provided the deduction does not add to or create a tax loss in that income year.

Non-concessional contributions cap

From 1 July 2007, non-concessional contributions made to a complying superannuation fund will be subject to an annual cap (subsection 292-85(2) of the ITAA 1997). The annual cap for non-concessional contributions made in the 2010-11 income year is $150,000.

Non-concessional contributions include:

· personal contributions for which an income tax deduction is not claimed;

· contributions a person's spouse makes to their superannuation fund account; and

· transfers from foreign superannuation funds (excluding amounts included in the fund's assessable income).

Some contributions are specifically excluded from being non-concessional contributions. These include:

· a Government co-contribution;

· a contribution arising from a structured settlement or an order for personal injury;

· a contribution relating to some capital gains tax (CGT) small business concessions to the extent that it does not exceed the CGT cap amount ($1,000,000 indexed annually) when it is made; and

· a roll-over superannuation benefit.

A taxpayer will be taxed on non-concessional contributions over the cap at the rate of 46.5% (subsection 292-80 of the ITAA 1997).

As a concession, to accommodate larger contributions, taxpayers under age 65 in an income year are able to bring forward future entitlements to of up to two years non-concessional contributions.

The Bring Forward Provisions

For a person who is 50 years of age or more, their transitional concessional contribution cap for the 2010-11 income year is $50,000, and their non-concessional contributions cap is $150,000.

However, subsection 292-85(3) and (4) of the ITAA 1997 ('the bring-forward provisions') provides that the non-concessional contributions cap is calculated differently if certain conditions are satisfied.

Subsection 292-85(3) of the ITAA 1997 states:

However, subsection (4) applies instead of subsection (2) in determining your non-concessional contributions cap for a *financial year (the first year) if:

(a) your non-concessional contributions for the first year exceed the amount mentioned in subsection (2) for that year; and

(b) you are under 65 years at any time in the first year; and

(c) a previous operation of subsection (4) does not determine your non-concessional contributions cap for the first year.

Therefore, a person who is under 65 years of age who makes non-concessional contributions during the income year that exceed the non-concessional contributions cap specified under subsection 292-85(2) of the ITAA 1997, would trigger the bring-forward provisions and their non-concessional cap would be calculated in accordance with subsection 292-85(4).

In this case, the contributions you made in the 2009-10 income year did not exceed the non-concessional contributions cap. As a result the bring-forward provisions were not triggered during the year in which you turned 65 years of age. Therefore, the requirements of the bring-forward provisions under subsection 292-85(3) of the ITAA 1997 will not be satisfied in the 2010-11 income year.

However, if you satisfy the work test for gainful employment, the fund will be able to accept your contributions in the 2010-11 income year.

Your non-concessional contributions cap for the 2010-11 income year is $150,000.

Superannuation interest by a taxpayer aged 60 years or over

Section 301-10 of the ITAA 1997 provides that if a person is 60 years or over when he or she receives a superannuation benefit (regardless of whether this benefit is received as a lump sum or income stream), the benefit is not assessable income and is not exempt income.

However, this section only applies if the superannuation benefit does not contain an untaxed element.

After 1 July 2007, if you are aged 60 or over you pay no tax on the tax free component or the taxable component - taxed element of your income stream (pension). You do not include the benefit in your personal income tax return and you do not pay any tax.

However, the taxable component - untaxed element of your income stream is still subject to tax.

In this case you are receiving a pension which contains a taxable component - untaxed element.

As you have reached age 60, and your pension contains a taxable component - untaxed element, the total amount is included in your assessable income and subject to tax at marginal rates plus Medicare levy (and Medicare levy surcharge, if applicable). However, you will be entitled to claim a tax offset of 10% in respect of the taxable component-untaxed element of the income stream (section 301-100 of the ITAA 1997).