Edited version of private ruling

Authorisation Number: 1011732235672

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Ruling

Subject: Non-concessional contributions cap - bring forward provisions

Issue 1

Questions

1. Can you claim a deduction for concessional 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)?

2. Will the 'bring forward' provision under subsection 292-85(4) of the ITAA 1997 be triggered where a contribution in excess of the non-concessional cap is made in the 2010-11 income year when the taxpayer turns age 65?

Advice/Answer

1. Yes, provided it does not add to, or create, a loss.

2. Yes.

This ruling applies for the following period

From 1 July 2010 up to 30 June 2014.

The scheme commenced on

1 July 2010.

Relevant facts

Your have estimated your total assessable income and reportable fringe benefits for the 2010-11 income year which includes salary and wages and rental income.

In the 2010-11 income year, you intend to make contributions to a fund (the Fund) and claim, up to the concessional contributions cap limit, as a tax deduction in respect of those contributions.

The Fund is a complying self-managed superannuation fund.

You would like to maximise the amount of non-concessional contributions and, if eligible, will utilise the bring forward provisions and make contributions up to $450,000 to the Fund for the 2010-11 income year.

You intend to provide a written notice to the Trustee of the Fund stating the amount you intend to claim as a tax deduction in respect of the concessional contributions made in the 2010-11 income year and fully expect the Trustee of the Fund to acknowledge receipt of this notice.

You have reached age 65 in 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:

· personal contributions up to the transitional concessional contributions cap of $50,000 will be made to the Fund 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; and

· 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

· your income from employment will be less than 10% of your total assessable income in the 2010-11 income year.

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 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 292-85(2).
Income Tax Assessment Act 1997 Subsection 292-85(3).
Income Tax Assessment Act 1997 Paragraph 292-85(3)(a).
Income Tax Assessment Act 1997 Paragraph 292-85(3)(b).
Income Tax Assessment Act 1997 Paragraph 292-85(3)(c).
Income Tax Assessment Act 1997 Subsection 292-85(4).
Superannuation Guarantee (Supervision) Act 1992 Subsection 12(11).
Taxation Administration Act 1953 Schedule 1, Division 359.

Reasons for decision

Issue 1

Summary

You are entitled to claim a deduction for the concessional contributions made in the 20XX-XX income year up to the concessional contributions cap limit provided the deduction does not add to or create a tax loss in that income year.

As you will be under age 65 during the 20XX-XX income year, the 'bring forward' provision will still be available during that income year. In order to trigger the 'bring forward' provision you will need to make non-concessional contributions in excess of $150,000 but not more than $450,000 in the 20XX-XX income year.

If you intend to make the contributions after you turn age 65, you will need to ensure that the superannuation fund is able to accept the contributions. Similarly, if the 'bring forward' limit of $450,000 has not been reached and you intend to make further contributions up to the $450,000 'bring forward' limit during the 2011-12 and/or 2012-13 income years, you will need to ensure that the superannuation fund is able to accept the contributions.

Detailed reasoning

Personal deductible superannuation contributions made in the 2010-11 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:

(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 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 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 and rental income.

Accordingly, 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.

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 are over age 50 and 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:

· you are 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.

Assumptions

You are confident that the trustee of the superannuation fund will accept a written notice stating your intention to claim a superannuation deduction for personal superannuation contributions made in the 2010-11 income year. You fully expect that the trustee will give you a notice acknowledging receipt of your notice. Therefore, based on the assumptions given, the notice of intent to deduct conditions under section 290-170 of the ITAA 1997 will be satisfied in this instance.

Contribution 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.

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

Concessional contributions cap

The concessional contributions cap for the 2010-11 income year is $25,000 if you are under 50 years of age on 30 June  of the financial year.

A transitional concessional contributions cap of $50,000 will apply for individuals aged 50 or older on 30 June of the financial year.

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.

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). For a person who is 50 years of age or more their non-concessional contributions cap for 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 two years worth of 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).

The explanatory memorandum to Tax Laws Amendment (Simplified Superannuation) Bill 2006 (the EM) states the following in relation to the 'bring forward' provisions:

1.85 As a concession, to accommodate larger contributions, people under age 65 in a financial year will be able to bring forward future entitlements to two years worth of non-concessional contributions. This means a person under age 65 will be able to contribute non-concessional contributions totalling $450,000 over three financial years without exceeding their non-concessional contributions cap. [Schedule 1, item 1, subsections 292-85(3) and (4)]

1.86 The bring forward will be triggered automatically when contributions in excess of the annual non-concessional contributions cap are made in a financial year by a person who is under age 65 at any time in the year where a bring forward has not already commenced. [Schedule 1, item 1, subsection 292-85(3)]

1.87 Where a bring forward has been triggered, the two future years' entitlements are not indexed. [Schedule 1, item 1, subsection 292-85(4)]

…

1.89 To simplify the operation of the non-concessional contributions cap, people aged 63 and 64 who take advantage of the bring forward will not be required to meet the work test in either of the following two financial years.

Therefore a person who is age 64 at the beginning of the 2010-11 income year and satisfies the work test (set out in the Superannuation Industry (Supervisions) Regulations 1994) may trigger the bring forward provisions by making a contribution in excess of $150,000 and up to $450,000 in the 2010-11 income year even though they are age 65 at the time of making the contribution.

However, for a person who is age 65 and over in the two future years, they are required to meet the work test before their superannuation fund can accept any further contributions up to the bring forward residual amount (if any).

In this case, you are under age 65 sometime during the 2010-11 income year (the first year) and will satisfy the work test. You intend to make non-concessional contributions in excess of $150,000 and up to $450,000. This will result in your non-concessional contributions for the 2010-11 income year exceeding the non-concessional contributions cap and, thus, triggering the bring-forward provisions.

This means your two future years' entitlements up to the bring forward residual amount can be made in the 2010-11 income year without breaching the non-concessional contributions caps for the 2011-12 and 2012-13 income years.

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 up to $50,000 for concessional 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.

If you make non-concessional contributions during the 2010-11 income year in excess of $150,000, the 'bring forward' provisions will be triggered.