Edited version of private ruling

Authorisation Number: 1011710828699

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Ruling

Subject: Personal superannuation contributions

Question

Can your client claim a tax deduction for personal superannuation contributions in the 2010-11 income year?

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

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.

Your client, who is less than 65 years of age, ceased employment with an Employer (the Employer) during the 2009-10 income year.

The final remuneration payment (final payment) from the Employer was received by your client in the 2010-11 income year.

The final payment, which had tax withheld, comprised unused entitlements and a refund of an overpayment.

No superannuation guarantee applied to the final payment as it contained no ordinary time earnings.

You state that your client has not been, and will not be, engaged in employment related activities during the 2010-11 income year.

Your client intends to make a contribution to a complying superannuation fund (the Fund).

Your client intends to claim a deduction in the 2010-11 income year in relation to the contribution that will be made to the Fund.

Assumptions

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

· your client 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 your client intends 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

· the deduction will not add to or create a tax loss in the your client's income tax return for the 2010-11 income year.

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 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

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Summary

On the basis of the information provided your client is entitled to claim a deduction in the tax return for the 2010-11 income year for personal contributions that will be made by your client 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

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 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 have stated that your client will make a personal superannuation contribution to a complying superannuation fund (the Fund) in the 2010-11 income year. Therefore this requirement will be 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.

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:

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.

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:

88. 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.

89. 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, your client ceased employment with the Employer during the 2009-10 income year and has not, and will not, be engaged in activities during the 2010-11 income year which would make your client an employee for the purposes of the SGAA. Therefore, your client is not required to meet the 'maximum earnings test' as an employee condition.

Hence, section 290-160 of the ITAA 1997 does not apply to your client in the 2010-11 income year, i.e. the year in which your client intends to make 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 your client will be under age 75 when the proposed contributions are to be made, this requirement is satisfied.

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 the income tax return is lodged 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, the contributor 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:

· the contributor is a member of the fund or the holder of the RSA;

· 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);

· the trustee or RSA provider has not begun to pay a superannuation income stream based on the contribution; or

· before the notice is given:

· a contributions splitting application has not been made in relation to the contribution; and;

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

It is assumed that your client will provide a valid notice to the trustee of the superannuation fund in accordance with section 290-170 of the ITAA 1997 and that the trustee of your client's superannuation fund will acknowledge that notice.

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 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.

Limits on concessional contributions

It should be noted that from 1 July 2007, there is a limit on the amount that a person can contribute into superannuation for an income year, which will be concessionally taxed.

One type of contribution is known as a concessional contribution, one example being personal contributions claimed as a tax deduction.

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 50 years old or over. For the 2010-11 and 2011-12 income years the annual cap is $50,000 for people 50 years or over. If a person has more than one fund, all concessional contributions made to all the persons' funds are added together and count towards the cap. This cap is not indexed.

Conclusion:

Based on the assumptions and facts previously noted, your client will 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.