Edited version of private ruling

Authorisation Number: 1011743877671

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Ruling

Subject: Deduction of personal superannuation contribution

Question

Does your client need to satisfy the maximum earnings test contained in section 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997) in order to claim a deduction for personal superannuation contributions under section 290-150 of the ITAA 1997?

Answer:

Yes

This ruling applies for the following period

Year ending 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

Your client is an Australian resident for taxation purposes.

Your client is employed by a foreign company overseas.

Your client is being remunerated in accordance with the foreign taxation laws.

Your client's employer is under no legislative obligation to provide superannuation support.

The employment income that your client receives is assessable in Australia.

This ruling is given on the basis of the facts stated in the description of the scheme as set out above. Any material variation from the facts (including any matters not stated in the description above and any departure from these facts) will mean that the ruling will have no effect. No entity will then be able to rely on this ruling as the Commissioner will consider that the scheme has been implemented in a way that is materially different from the scheme described.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 82-130(1)

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 292-20

Income Tax (Transitional Provisions) Act 1997 section 292-20

Superannuation Guarantee (Administration) Act 1992 Section 12.

Reasons for decision

Issue

Question

Does your client need to satisfy the maximum earnings test contained in section 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997) in order to claim a deduction for personal superannuation contributions under section 290-150 of the ITAA 1997?

Summary of decision

Your client is an "employee". Therefore, your client will be subject to the maximum earnings test in order to claim a deduction for personal superannuation contributions.

Detailed reasoning

Under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997), a taxpayer can claim a deduction in respect of personal contributions made to a superannuation fund or retirement savings account (RSA) for the purpose of providing superannuation benefits for the taxpayer.

In order to do so, the conditions specified in sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997 must all be satisfied before a taxpayer can claim a deduction for the contributions made in that income year.

Maximum earnings as an employee condition

The condition in section 290-160 of the ITAA 1997 requires that if a taxpayer is engaged in any activities that result in them being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA) then less than 10% of the total of their assessable income and reportable fringe benefits must be attributable to those activities. Subsection 290-160(1) 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 appointment;

(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 has not been enacted).

In this case your client is employed by a foreign company overseas and the employment income he receives is assessable in Australia.

Therefore, your client is an "employee" for the purposes of the SGAA during the 2010-11 income year.

Employment activity conditions

Section 12 of the SGAA states that the terms employee and employer have their ordinary meaning for the purposes of the SGAA. Superannuation Guarantee Ruling SGR 2005/1 (SGR 2005/1) entitled Superannuation guarantee: who is an employee? explains when an individual is considered by the Commissioner to be an employee under section 12 of the SGAA.

Under section 12 of the SGAA, a person is considered an employee if they satisfy the following employment activity conditions:

· Engaged in producing the employer's assessable income; or

· An Australian resident who is engaged in the employer's business

Based on the facts you provided, your client is under a contractual relationship with his employer and thus, meets the conditions of the above. However, as the employer in question is not a resident company and it is not clearly explained in the SGAA as to whether this is within the scope of a relevant "employment activity", we must look for further guidance.

The Commissioner has issued a Taxation Ruling TR 2010/1 which discusses the conditions that constitutes relevant "employment activity".

In paragraph 65 and 66 of TR 2010/1 the Commissioner states:

In the application of the maximum earnings test, the relevant 'employment' activity need not be an activity in Australia… and

However the 'employment income' of an Australian resident employed overseas by a foreign employer will be counted in the maximum earnings test if the income is assessable income.

As such, the facts indicate that your client is a resident of Australia for income tax purposes, is considered an "employee" for the purpose of the SGAA and the income he earns is assessable in Australia. Therefore, the maximum earnings condition under section 290-160 of the ITAA 1997 is applicable to your client.

Consequently, section 290-160 of the ITAA 1997 applies to you in the 2010-11 income year.

Where section 290-160 of the ITAA 1997 applies to a person, subsection 290-160(2) of the ITAA 1997 states that:

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 income year;

(b) your reportable fringe benefits total for the income year;

(c) the total of your reportable employer superannuation contributions for the income year.

Other Conditions

Although the application of this ruling is limited to the condition in section 290-160 of the ITAA 1997, sections 290-155, 290-165 and 290-170 of the ITAA 1997 will still need to be satisfied in order for your client to be eligible to claim a deduction for his personal superannuation contribution under section 290-150 of the ITAA 1997.

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.

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.

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.

The deduction your client claims under section 290-150 of the ITAA 1997 cannot add to or create a loss.

Also note, concessional contributions made to superannuation funds in the 2010-2011 income year are subject to an annual cap of $25,000. Concessional contributions include employer contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a person.

A person will be taxed on concessional contributions over the $25,000 cap at a rate of 31.5%. The superannuation fund can be asked to release money to pay this excess contributions tax.

Between 1 July 2007 and 30 June 2012, a transitional concessional contributions cap will apply. The annual cap is $50,000 in the 2010-2011 income year for people aged 50 or over (subsection 292-20(2) of the Income Tax (Transitional Provisions) Act 1997).