Edited version of private ruling

Authorisation Number: 1011745085155

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Ruling

Subject: Deduction for Personal Superannuation Contributions

Question

Can you claim a deduction for a personal superannuation contribution to be made in the relevant income year under section 290-150 of the Income Tax Assessment Act 1997?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 2012.

The scheme commences on:

1 July 2011.

Relevant facts and circumstances

You are over age 55 but under age 65, and you retired from your previous employment during the relevant income year. From the retirement date until the day before you commenced receiving a superannuation pension, you received interest from accumulated savings and income from limited part-time work with Federal and State Government agencies.

During the last quarter of the income year you commenced receiving a superannuation pension. The pension consists of a taxable component-untaxed element only from which a PAYG withholding amount is deducted.

You will not be employed in any capacity during the relevant income year.

In the relevant income year you intend to make personal superannuation contributions to a savings account. The account is a retirement savings account (RSA). You will make these contributions in order to obtain superannuation benefits for yourself.

In the relevant income year you expect to receive a superannuation pension and gross interest.

You expect that these amounts will be the only assessable income you will receive during this income year although you may receive a superannuation lump sum payment from the RSA, which will consist of a taxable component-taxed element.

You have also advised that the RSA is not and will not be paying you a superannuation income stream based in whole or in part on these contributions.

You will receive no reportable fringe benefits in the relevant income year, and you have no reportable employer superannuation contributions for this income year.

You intend to claim a deduction for the contributions you will make to the RSA in the relevant income year. The deduction will not create a loss in this income year.

You will claim no other deductions in this income year, and the only tax offset you will claim will be a tax offset for your spouse (without a dependent child or student).

You have yet to provide a written notice to the RSA provider, stating your intention to claim a deduction in the relevant income year in respect of your contributions. You will provide a written notice of intent to deduct contributions to the RSA provider.

You have yet to obtain a written notice for the relevant income year from the RSA provider acknowledging receipt of your notice of intent in respect of your contributions. You have advised that you will obtain this acknowledgement notice.

Assumptions

You will not be engaged in activities during the relevant income year that would result in you being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA).

You will provide a written notice to the RSA provider in accordance with section 290-170 of the Income Tax Assessment Act 1997, stating that you intend to claim a deduction in respect of the contributions you will make to the RSA in the relevant income year.

You will obtain a written notice for the relevant income year from the RSA provider acknowledging receipt of your notice of intent in respect of these contributions.

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 Paragraph 290-160(1)(a),

Income Tax Assessment Act 1997 Paragraph 290-160(1)(b),

Income Tax Assessment Act 1997 Subsection 290-160(2),

Income Tax Assessment Act 1997 Subsection 290-165(2),

Income Tax Assessment Act 1997 Section 290-170,

Income Tax Assessment Act 1997 Section 290-175,

Income Tax Assessment Act 1997 Subsection 995-1(1),

Retirement Savings Accounts Act 1997 Subsection 8(1),

Retirement Savings Accounts Act 1997 Paragraph 8(1)(a),

Retirement Savings Accounts Act 1997 Subsection 9(1),

Retirement Savings Accounts Act 1997 Section 11,

Retirement Savings Accounts Act 1997 Section 12,

Retirement Savings Accounts Act 1997 Section 13,

Retirement Savings Accounts Act 1997 Section 15 and

Retirement Savings Accounts Regulations 1997 Regulation 5.03.

Reasons for decision

Summary

It is assumed that you will not be engaged in any activities during the relevant income year that would result in you being treated as an employee for Superannuation Guarantee purposes. Therefore, it is accepted that you will not engaged in an employment activity in this income year. Consequently, the maximum earnings as an employee condition not does apply to you in this income year.

You can claim a deduction for the personal contributions you will make in this income year, provided the notice of intent to deduct conditions are satisfied, the amount of the deduction you will claim does exceed the amount specified in your notice of intent, and the deduction does not add to or create a loss in this income year.

Detailed reasoning

Personal superannuation contributions made in the relevant income year

A person can claim a deduction for personal contributions made to a retirement savings account (RSA) for the purpose of providing superannuation benefits for themselves under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997). However, all the applicable conditions in subdivision 290-C of the ITAA 1997 must be satisfied for the person to be able to claim the deduction.

These conditions are explained in detail in Taxation Ruling TR 2010/1 (TR 2010/1) entitled 'Income Tax: superannuation contributions'.

In the relevant income year you intend to make personal superannuation contributions to a savings account. You will make these personal contributions in order to obtain superannuation benefits for yourself. Firstly it must be determined whether the savings account is an RSA.

Is the account into which you will make the contributions an RSA?

Subsection 995-1(1) of the ITAA 1997 states:

RSA has the meaning given by the Retirement Savings Account Act 1997. …

RSA provider  has the same meaning as in the Retirement Savings Account Act 1997.

Subsection 8(1) of the Retirement Savings Accounts Act 1997 (RSA Act) defines an RSA as follows:

An RSA, or retirement savings account, is an account or a policy:

(a) that is described as an RSA; and

(b) that is provided by an entity that is an RSA institution at the time the account is opened or the policy is issued; and

(c) that is capital guaranteed (see section 14); and

(d) that is held by a person who is an eligible person at the time the account is opened or the policy is issued (see section 13); and

(e) that, at the time that it is opened or issued, satisfies:

(i) the requirement of section 15; and:

(ii) any prescribed criteria; and

(f) that is opened or issued on or after 1 July 1997 or such later day as is prescribed.

Sections 11 and 12 of the RSA Act respectively define who is an RSA institution and who is an RSA provider in relation to an RSA. It is noted in section 12 that most RSA providers will also be RSA institutions. Section 13 of the RSA Act defines who is an eligible person in respect of an RSA and the requirements of section 15 of the RSA Act specify the RSA benefits for which an RSA must be maintained.

Of particular note in this instance is the requirement in paragraph 8(1)(a) of the RSA Act, which states that an account provided by an RSA institution and/or an RSA provider (as the case may be) must be described as an RSA.

A Product Disclosure Statement (PDS) issued by the RSA provider is available on its website. The PDS states that the savings account is an RSA established and maintained pursuant to the terms of the RSA Act, and that it is offered and capital guaranteed by the RSA provider.

A certification letter for the savings account is also available on the website of the RSA provider.

The letter certifies that the savings account is an RSA as defined in the RSA Act. The letter also certifies that the RSA provider is an RSA institution in terms of the RSA Act.

In both the PDS and the certification letter, the RSA provider expressly describes the savings account as an RSA in accordance with paragraph 8(1)(a) of the RSA Act. As the requirement in paragraph 8(1)(a) of the RSA Act is satisfied, and in view of the information about the RSA provided by the RSA provider in these documents and on its website, it is clear that you will make the proposed contributions into an RSA.

Complying superannuation fund condition

Section 290-155 of the ITAA 1997 states that:

If a contribution is made to a superannuation fund, it must be a complying superannuation fund for the income year of the fund in which you made the contribution.

As noted above, you will make your proposed contributions into an RSA. Therefore section 290-155 of the ITAA 1997 does not apply, and there is no need to consider the complying superannuation fund condition in relation to these contributions.

Maximum earnings as an employee condition

For those persons who are engaged in any 'employment' activities in the relevant income year, a deduction can only be claimed where the sum of assessable income, reportable fringe benefits total, and reportable employer superannuation contributions attributable to the 'employment' activities is less than 10% of the total of the person's assessable income, reportable fringe benefits total and reportable employer superannuation contributions in the income year that the contribution is made. The term 'reportable employer superannuation contributions' includes salary sacrifice contributions made for the person's benefit in that income year.

Subsection 290-160(1) of the ITAA 1997 operates to apply the maximum earnings test only if, in the income year in which the contribution is made, the person is engaged in any of the following activities (paragraph 290-160(1)(a)):

· holding an office or appointment (for example, a director of a company);

· performing functions or duties;

· engaging in work;

· doing acts or things; and

· the activities result in that person being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (paragraph 290-160(1)(b)).

The maximum earnings as an employee condition does not apply to you

The employment activity condition outlined in subsection 290-160(1) of the ITAA 1997 has two parts. To satisfy this condition, therefore, a taxpayer must both:

engage in any of the employment activities specified in paragraph 290-160(1)(a) of the ITAA 1997, and

as a result be treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA), as specified in paragraph 290-160(1)(b) of the ITAA 1997.

You retired from your previous employment during the relevant income year. From the retirement date until the day before you commenced receiving a superannuation pension, you received interest from accumulated savings and income from limited part-time work with Federal and State Government agencies. Otherwise you have been a retiree during this period.

You state that you will not be employed in any capacity during the relevant income year. Further, it is assumed that you will not be engaged in any activities during this income year that would result in you being treated as an employee for the purposes of the SGAA. In this respect, you advise that the only assessable income you expect to receive during this income year will be a superannuation pension and gross interest. In addition, you may receive a superannuation lump sum payment from the RSA during this income year.

Based on this assumption it is accepted that you will not be engaged in an employment activity during the relevant income year and, consequently, the maximum earnings as an employee condition not does apply to you. Therefore, section 290-160 of the ITAA 1997 does not apply to you in the relevant income year.

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. In this case, because you will be under age 75 at all times during the relevant income year, you will satisfy the age-related conditions.

Notice of intent to deduct conditions

Section 290-170 of the ITAA 1997 provides that you must give to the RSA provider a valid notice, in the approved form, of your intention to claim a deduction in respect of these contributions, and you must also have been given an acknowledgment of receipt of the notice by the RSA provider.

Section 290-170 of the ITAA 1997 also provides that you must give your notice of intent to the RSA provider by the earlier of the date you lodge your income tax return or the end of the income year following the year in which the contributions are made.

Section 290-170 of the ITAA 1997 also provides that you must give your notice to the RSA provider before the earlier of:

· the date you lodge your income tax return for the income year in which the contributions were made; or

· the end of the income year following the year in which the contributions were made.

Accordingly, you must give your notice to the RSA provider before you lodge your tax return for the relevant income year or by 30 June 2013, whichever is the earlier. In addition, the RSA provider is required to acknowledge your notice without delay.

A notice will be valid as long as the following conditions are satisfied:

· the notice is in respect of the contribution;

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

· at the time when the notice is given:

· you are the holder of the RSA;

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

· before the notice is given:

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

· the RSA provider has not rejected the application.

Subsection 9(1) of the RSA Act states:

A person holds an account if the account is opened in the person's name. The person is the holder of the account.

It is accepted that you opened the savings account in your name. Therefore in accordance with subsection 9(1) of the RSA Act you are the RSA holder in relation to this RSA. Further, it is noted that the RSA is not and will not be paying you a superannuation income stream based in whole or in part on your contributions.

You intend to claim a deduction for these contributions in the relevant income year.

You have yet to provide the RSA provider with your notice of intent to claim the deduction in respect of these contributions, and you state that you will provide this notice to the RSA provider.

The RSA provider has yet to issue an acknowledgment of receipt of your notice of intent, and you state that you will obtain this acknowledgement notice from the RSA provider.

It is assumed that you will provide a valid notice to the RSA provider in accordance with section 290-170 of the ITAA 1997 and that the RSA provider will acknowledge the receipt of your notice. Based on this assumption the notice of intent to deduct conditions under section 290-170 of the ITAA 1997 will be satisfied in this instance.

Deduction limited by amount specified in notice

Subsection 290-175 of the ITAA 1997 states that the deduction cannot be more than the amount covered by the notice given under section 290-170 of the ITAA 1997.

Provided the amount of the deduction you will claim does exceed the amount specified in your section 290-170 notice, you will also satisfy this requirement.

Deduction limits

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. Therefore a deduction for personal superannuation contributions cannot add to or create a loss.

You have advised that the deduction for your proposed contributions will not create a loss in this income year. In this light, it is accepted that the deduction will not create a loss in this income year.

Deduction for the personal superannuation contribution

As you will satisfy all the required conditions in subdivision 290-C of the ITAA 1997, you can claim a deduction in the relevant income year for the personal contributions you intend to make to the RSA in this income year.