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Authorisation Number: 1011783769674

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Ruling

Subject: Deduction for personal superannuation contributions

Question:

Will your personal superannuation contributions be deductible under section 290-150 of the Income Tax Assessment Act 1997 for the 20XX-XX income year?

Advice/Answers:

No.

This ruling applies for the following period:

1 July 2009 to 30 June 2010

The scheme commenced on:

1 July 2009

Relevant facts:

You are over 55 years of age.

You were an employee of a company Ltd (the employer) until it went into liquidation.

You state that the employer made the last superannuation contribution for you about two years ago.

You commenced employment with another employer (the second employer) prior to which you worked as a sole contractor for a few months.

A statement from your superannuation fund (the Fund) shows that an employer contribution was made for you.

You made a personal superannuation contribution to the Fund. The Fund has deducted 15% tax on your personal contributions.

You have advised that your income tax return for the 20XX-XX income year contains your assessable income from all sources.

You have no exempt income, reportable fringe benefits or reportable employer superannuation contributions in the 20XX-XX income year.

Assumptions:

None.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 26-55.
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 Section 290-165.
Income Tax Assessment Act 1997 Section 290-170.
Income Tax Assessment Act 1997 Subsection 290-170(2).
Superannuation Guarantee (Administration) Act 1992 Section 12.
Superannuation Guarantee (Administration) Act 1992 Subsection 12(11).
Superannuation Guarantee (Administration) Act 1992 Section 19.
Superannuation Guarantee (Administration) Act 1992 Paragraph 27(1)(c).

Reasons for decision

Summary

You do not satisfy the 'maximum earnings as employee' condition and 'notice of intent to deduct' condition in order to claim a deduction for personal superannuation contributions.

Therefore, you are not eligible to claim a deduction for the personal superannuation contributions made to your superannuation fund in the 20XX-XX income year.

Detailed reasoning

Deduction for personal superannuation contribution

Under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997) a taxpayer can claim a deduction for a personal contribution they make to a superannuation fund for the purpose of providing superannuation benefits for themselves provided the conditions in sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997 are satisfied.

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 in which the contribution is made.

In this case, you made a contribution to a fund that is a complying superannuation fund in the 20XX-XX income year and therefore this condition is satisfied.

Maximum earnings as employee condition

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).

Subsection 290-160(1) of the ITAA 1997 has two parts, firstly that the taxpayer engages in any of the activities specified in paragraph 290-160(1)(a), and secondly that the activities result in the taxpayer being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA).

Subsection 12(11) of the SGAA operates to exclude from the definition of 'employee' persons who are paid to do work wholly or principally of a domestic or private nature of no more than 30 hours per week.

If the criteria of subsection 290-160(1) of the ITAA 1997 are satisfied, then subsection 290-160(2) of the ITAA 1997 needs to be considered. It states:

To deduct the contribution, less than 10% of the total of the following must be attributable to the activities:

(d) your assessable income for the income year;

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

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

In essence, the relevant test is whether less than 10% of a taxpayer's assessable income, reportable fringe benefits and reportable employer superannuation contributions is attributable to activities that result in the taxpayer being treated as an employee for the purposes of the SGAA.

Employee at common law

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 subsection 12(1) of the SGAA, which states that:

12(1) Subject to this section, in this Act, employee and employer have their ordinary meaning. However, for the purposes of this Act, subsections (2) to (11):

(a) expand the meaning of those terms; and

(b) make particular provision to avoid doubt as to the status of certain persons,

The expression 'have their ordinary meaning' imports the common law definition of "employee". This means that, as explained by the Commissioner in paragraph 21 of SGR 2005/1, subsection 12(1) of the SGAA 'defines the term "employee" as having its ordinary meaning - that is, its meaning under common law'.

The Commissioner further notes that 'if a worker is held to be an employee at common law, then they will be an employee under the SGAA'. Hence in paragraph 8 of SGR 2005/1 the Commissioner also states that:

Under subsection 12(1) of the SGAA, if a person is an employee at common law, that person is an employee under the SGAA.

It is clear from paragraph 8 of SGR 2005/1 that the simple fact of being a common law employee results in an individual being treated as an employee for the purposes of the SGAA.

You were employed by the second employer in the 20XX-XX income year. Accordingly, you were an employee under common law and were therefore an employee for the purposes of the SGAA during this period.

As you were an employee for the purposes of the SGAA, you satisfy the employment activity condition set out in subsection 290-160(1) of the ITAA 1997 i.e. the 10% test.

All amounts of assessable income, reportable fringe benefits and reportable employer superannuation contributions that are attributable to an employment activity are taken into account in applying the 10% test set out in subsection 290-160(2) of the ITAA 1997. The terms 'assessable income', 'reportable fringe benefits' and reportable employer superannuation contributions are given their statutory meaning when applying this test as stated in paragraphs 63 and 253 of Taxation Ruling TR 2010/1 entitled Income tax: superannuation contributions (TR 2010/1).

Assessable income

Paragraph 63 of TR 2010/1 states:

63. Assessable income, reportable fringe benefits total and reportable employer superannuation contributions are to be given their statutory meaning. In this regard, a person's assessable income is usually a gross amount worked out ignoring expenses incurred in gaining the income….

Under paragraph 64 of TR 2010/1, assessable income includes salary and wages, allowances, employment termination payments, commission, director's remuneration, contract payments treated as salary and wages by section 11 of the SGAA for person's who engage in an employment activity in a capacity other than a common law employee and certain worker's compensation payments.

Further, paragraph 254 of TR 2010/1 states that for an individual assessable income includes gross business income of a sole trader, gross rent from a solely owned property, interest, dividends, franking credits and net partnership income.

Your assessable income in the 20XX-XX income year as determined from your income tax return consisted of salary and wages, allowances, gross rent and gross business income.

Your assessable income, reportable fringe benefits and reportable employer contributions attributable to employment activities for the 20XX-XX income year were clearly more than the 10% threshold.

Consequently you do not satisfy the requirements that are prescribed under section 290-160 of the ITAA 1997.

Age related conditions

Section 290-165 of the ITAA 1997 requires a taxpayer to have made the contribution before the day that is 28 days after the end of the month in which they turn 75 years of age.

This condition is satisfied as you were under this age in the 20XX-XX income year.

Notice of intent to deduct conditions

Section 290-170 of the ITAA 1997 requires a taxpayer to provide a valid notice of their intention to claim the deduction to the trustee of their superannuation fund. The notice must be given by the earlier of the date the taxpayer lodges their income tax return or the end of the income year following the year in which the contribution was made. The taxpayer must also have been given an acknowledgement of the notice by trustee of the superannuation fund.

You have not provided a written notice to the fund stating your intention to claim a deduction for the personal superannuation contribution. Therefore you could not have received a written notice from the fund acknowledging the intention to claim a deduction for the personal superannuation contribution. Therefore this condition has not been satisfied.

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 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.

In this case, all the conditions for claiming a deduction have not been satisfied.

Conclusion

You do not satisfy all the requirements to claim a deduction under section 290-150 of the ITAA 1997 for the personal superannuation contribution in the 20XX-XX income year.

All the conditions must be satisfied for a deduction to be allowable. The Commissioner has no discretion to be able to relax the 10% rule. Therefore you are not eligible to claim a deduction in the 20XX-XX income year.

The contributions are therefore non-concessional contributions.

Tax on contributions

A complying superannuation fund is taxed at the rate of 15% on the low tax component of its taxable income and at 45% on the non-arm's length component of it's taxable income. This 15% tax is known as the 'contributions tax'.

The taxable income of a superannuation fund is worked out by taking into account assessable contributions. Assessable contributions include personal contributions for which the contributor intends to claim a deduction and do not include non-concessional contributions.

You have advised that your superannuation fund (the Fund) has deducted 15% tax on your personal contributions. However, as you cannot claim a deduction for the contributions, the Fund does not need to include the contribution in their assessable income.

Consequently, the Fund should not have deducted 15% from your contributions.

You should approach the Fund to resolve the matter.