Edited version of private ruling

Authorisation Number: 1011777774749

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Ruling

Subject: Deductibility for personal superannuation contributions

Issue

Question

Will concessional contributions made to a complying superannuation fund during the 2010-11 income year be deductible under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Advice/Answer

Yes.

This ruling applies for the following period

For the year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

In the 20XX-XX income year, you terminated employment with an employer (the employer) due to your disability.

You lodged a Workcover claim under an Act (the Act) under which you are entitled to a specified percentage of your pre injury earnings.

In the fourth quarter of the 20XX-XX income year, a medical panel considered that due to the nature of your medical condition there was no work for which you were currently suited and which you could perform on a consistent basis, therefore concluded that you had no current work capacity. Furthermore, they concluded that you are likely to continue indefinitely to have no current work capacity.

You are currently being paid a percentage of your pre injury earnings by a super fund as a permanent disability pension. The remaining amount up to the specified percentage is paid to you on a fortnightly basis from the employer.

A representative of the employer confirmed that you ceased employment with the employer in the 2003-04 income year, and that you are no longer engaged in employment activities. The remaining amount up to the specified percentage of your pre injury earnings is being paid to you by the employer under a specified section of the Act and in respect of your past employment with the employer.

The employer has an obligation to maintain this payment until you reach age 65.

Your total assessable income and reportable fringe benefits for the 20XX-XX income year includes your disability pension from a super fund and the top-up disability payment from the employer.

You intend to make concessional contributions up to $50,000 to a complying superannuation fund and intend to claim as a tax deduction in respect of the concessional contributions made in the 20XX-XX income year.

The contributions are being made for the provision of superannuation benefits for you or for your dependants in the event of your death.

You are over the age of 50 years.

Assumptions

You agree with the following assumptions being made in issuing the Notice of Private Ruling:

· personal contributions up to the concessional contributions cap of $50,000 will be made to a complying fund in the 20XX-XX 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 20XX-XX 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 20XX-XX income year under section 290-170 of the ITAA 1997 acknowledging receipt of your notice.

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

Question

Summary

You are entitled to claim a deduction for 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.

Detailed reasoning

Personal deductible superannuation contributions made in the 2010-11 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 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 will make personal superannuation contributions to a complying superannuation 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:

(c)your assessable income for the year;

(d) your reportable fringe benefits total for the income year.

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. It should be noted that the level of superannuation support by an employer or another person is no longer a relevant factor under this condition.

At paragraph 57 of Taxation Ruling TR 2010/1, the Commissioner states:

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.

However, for those persons not engaged in an employment activity, at paragraph 58 of TR 2010/1 the Commissioner states:

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.

For persons aged 65 up to age 75 they must meet the work test for each year a contribution is made.

To satisfy the work test, an individual must work for at least 40 hours during a consecutive 30 day period each financial year.

In this case, you ceased employment in the 2003-04 income year. Your total assessable income, exempt income and reportable fringe benefits for the 2010-11 income year includes your disability pension from a super fund and the top-up disability payment from the employer.

Furthermore, you are not engaged in employment activities during the 2010-11 income year that would make you an employee for the purposes of the SGAA. Therefore, you are not required to meet the condition of the 10% rule.

Hence, section 290-160 of the ITAA 1997 does not apply in the income year in which you propose to make a 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 you are over age 50 and under 75 years when the proposed contribution is to be made, you will 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.

Deduction 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.

Contribution limits

From 1 July 2007, concessional contributions made to superannuation funds will be subject to an annual cap of $50,000. Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a person.

As noted earlier, the age based limits on deductions that existed prior to 1 July 2007 for these contributions will no longer apply.

However, from 1 July 2009, the concessional contributions cap for a person 50 years of age or more on 30 June 2010 the new concessional contributions cap is $50,000.

Therefore, as you are over 50 years of age in the 20XX-XX income year, the concessional contributions cap of $50,000 will apply. This amount is not indexed.

Conclusion

As you will satisfy the conditions in sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997 you will be entitled to claim a deduction of 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.