Edited version of private ruling

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Ruling

Subject: Deduction for Personal Superannuation Contribution

Question

Can your client claim a deduction in respect of a personal superannuation contribution for the 2009-10 income year under section 290-150 of the Income Tax Assessment Act 1997?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2010.

The scheme commences on:

1 July 2009.

Relevant facts and circumstances

Your client retired from employment with a company a few years ago. Prior to the retirement, your client received shares under an incentive plan (the plan).

Under the rules of the plan, your client was entitled to receive dividend payments in relation to these shares.

During the 2009-10 income year your client exercised some of these shares. In an email, your client was advised that a dividend payment was due to be paid on the exercise of these shares. Your client was further advised that the payment would be made less the usual payroll deductions, and would be converted into Australian currency using the exchange rate on the date of the exercise of these shares.

Your client was also advised in this email that the company's payroll system was notified to make the dividend payment.

You have advised that your client is still on the Company's payroll system, solely to enable the payment of the dividend payment.

Subsequently, your client received the dividend payment from the company. A PAYG Payment Summary-individual non-business was issued for the 2009-10 income year in relation to this payment. The PAYG payment summary shows no reportable fringe benefits and no reportable employer superannuation contributions, and discloses the gross dividend payment and the PAYG withholding amount withheld by the company from this payment.

You have advised that your client was not engaged in any employment activity during the 2009-10 income year. You have also advised that the dividend payment was made to your client in this income year as a deferred entitlement.

Your client received a pension from a superannuation fund sponsored by the company (the company fund) during the 2009-10 income year.

A breakdown of your client's assessable income for the 2009-10 income year was provided. Your client received no reportable fringe benefits in the 2009-10 income year. No reportable employer superannuation contributions were made for your client's benefit to a complying superannuation fund in this income year.

In the 2009-10 income year, your client received a pension from a complying self-managed superannuation fund (the fund).

Towards the end of 2009, your client made a member contribution to the fund. Your client made the personal contribution for the purpose of providing superannuation benefits for your client or for your client's dependants if your client dies before or after becoming entitled to these benefits.

You have advised that the contribution to the fund was made to a different superannuation account than the one from which your client is currently receiving a pension.

Your client intends to claim a deduction for the full amount of the contribution. You have advised that the deduction will not create a loss in the 2009-10 income year. Your client lodged with the fund trustee a notice of intent to claim the deduction. Your client received a written notice from the fund trustee, acknowledging receipt of your client's notice of intent to claim to claim the deduction.

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 Subsection 290-155(2),

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 Section 290-165,

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

Income Tax Assessment Act 1997 Section 290-170 and

Income Tax Assessment Act 1997 Section 290-175.

Reasons for decision

Summary

The maximum earnings test does not apply to your client in the 2009-10 income year, because your client was not engaged in an employment activity. Your client can claim a deduction in respect of the personal contribution they made during this income year, provided the deduction does not add to or create a loss.

Detailed reasoning

Personal superannuation contributions made in the 2009-10 income year

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).

Your client made a personal superannuation contribution to a complying self-managed superannuation fund (the fund) towards the end of December 2009, in order to obtain superannuation benefits.

However, the conditions in sections 290-155, 290-160 (if applicable), 290-165 and 290-170 of the ITAA 1997 must also be satisfied for the person to claim the deduction. These conditions are explained in detail in Taxation Ruling TR 2010/1 (TR 2010/1) entitled 'Income Tax: superannuation contributions'.

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 instance, the superannuation fund into which your client made the contribution is a complying superannuation fund. Therefore, your client satisfies this condition.

Maximum earnings as an employee condition

For those persons who are engaged in any 'employment' activities in the 2009-10 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. 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 (SGAA).

The maximum earnings as an employee condition does not apply to your client

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.

From the facts provided in this case, your client was not engaged in an employment activity during the 2009-10 income year. In this light, it is noted that the email your client received confirms that your client's inclusion on the employer's payroll is an administrative measure to enable the payment of the dividend payments to your client after their retirement, and that your client was not re-engaged by the company as an employee during this income year. Consequently, the maximum earnings as employee condition not does apply to your client in this income year.

Therefore, section 290-160 of the ITAA 1997 does not apply to your client in the 2009-10 income year. It follows that the dividend payment your client received in this income year is not subject to the maximum earnings test.

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 was under age 65 when the personal contribution was made, your client satisfies these conditions.

Notice of intent to deduct conditions

Section 290-170 of the ITAA 1997 provides that your client must give to the trustee of the complying superannuation fund (the fund trustee) a valid notice of an intention to claim a deduction in respect of the contribution, and your client must also have been given an acknowledgment of receipt of the notice by the fund trustee.

Your client lodged with the fund trustee a notice of intent to claim a deduction in respect of the personal contribution. Your client subsequently received a written notice from the fund trustee, acknowledging receipt of your client's notice of intent to claim to claim the deduction.

Consequently, your client has satisfied the notice of intent to deduct condition in section 290-170 of the ITAA 1997.

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.

Your client intends to claim to claim a deduction for the full amount of the contribution they made during the 2009-10 income year. As the deduction your client intends to claim does not exceed the amount specified in the section 290-170 notice for this income year, your client also satisfies 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 your client's intended deduction for the contribution will not create a loss. Therefore it is accepted that the deduction for the contribution will not create a loss in this instance.

Deduction for the personal contribution made in the 2009-10 income year

On the facts provided, it is accepted that your client satisfies all the required conditions in subdivision 290-C of the ITAA 1997, in respect of the contribution your client made to the fund in the 2009-10 income year. Therefore, your client can claim a deduction for the full amount of the contribution, provided the deduction does not add to or create a loss in this income year. This amount will be a concessional contribution in the 2009-10 financial year, and will be counted towards your client's annual concessional contributions cap of $50,000 for this financial year.