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Authorisation Number: 1011861160226

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Ruling

Subject: Deduction for personal superannuation contributions

Questions:

1. Will the personal superannuation contributions made to a complying superannuation fund be deductible under section 290-150 of the ITAA 1997 for the 2011-12 income year?

2. Will the personal superannuation contributions made to a constitutionally protected fund be deductible under section 290-150 of the ITAA 1997 for the 2011-12 income year?

Advice/Answers:

1. Yes, to the extent that it does not add to or create a loss.

2. Yes, to the extent that it does not add to or create a loss.

This ruling applies for the following period:

1 July 2011 to 30 June 2012

The scheme commenced on:

1 July 2011

Relevant facts:

You are under 55 years of age.

You work in both the public sector (for your government employer) and private practice [employed by your and your spouse's company (the Company)].

Your government employer makes superannuation guarantee contributions to a constitutionally protected fund (CPF) - (the Fund) which is administered by a statutory authority.

The Company makes concessional superannuation contributions for you into a superannuation fund with a corporate trustee.

Your have estimated the amount of the gross income from your government employer and employer superannuation contributions for the 2011-12 income year.

Your estimated gross income from the Company for the 2011-12 income year is nil. You will not be providing any services for the Company from 1 July 2011.

In the 2011-12 income year you will be self-employed. You have estimated the amount of your gross income from the Company.

You intend to salary sacrifice all your income from your government employer for the 2011-12 income year in to the Fund.

You wish to make personal deductible contributions and non-concessional contributions in the 2011-12 income year without breaching the concessional contributions and non-concessional contributions caps.

You have advised that you may make the non-deductible personal superannuation contributions to the Fund or to another private sector superannuation fund.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Subsection 26-55(2).

Income Tax Assessment Act 1997 Paragraph 26-55(2)(a).

Income Tax Assessment Act 1997 Paragraph 26-55(2)(b).

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 Section 290-170.

Income Tax Assessment Act 1997 Section 995-1.

Income Tax (Transitional Provisions) Act 1997 Section 292-90.

Superannuation Guarantee (Administration) Act 1992 Subsection 12(11).

Superannuation Industry (Supervision) Act 1992 Section 10.

Superannuation Industry (Supervision) Act 1992 Subsection 45(1)

Reasons for decision

Summary

You are eligible to claim a deduction for personal superannuation contributions you will personally make to the CPF and/or another complying superannuation fund provided all the required conditions of deductibility (including the notice requirements) are satisfied. The amount of the deduction that can be claimed will be limited to the extent that it does not add to or create a loss.

Detailed reasoning

Personal superannuation contributions

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). 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 in which the contribution is made.

A complying superannuation fund is defined in section 995-1 of the ITAA 1997 as follows:

complying superannuation fund means a complying superannuation fund within the meaning of section 45 of the Superannuation Industry (Supervision) Act 1993.

Section 45 of the Superannuation Industry (Supervision) Act 1993 (SISA) states:

(1) A fund is a complying superannuation fund for the purposes of the Income Tax Assessment Act in relation to a year of income (the current year of income) if, and only if:

(a) the Regulator has given a notice to a trustee of the fund under section 40 stating that the fund is a complying superannuation fund in relation to the current year of income; or

(b) the Regulator has given a notice to a trustee of the fund under section 40 stating that the fund is a complying superannuation fund in relation to a previous year of income and has not given a notice to a trustee of the fund under that section stating that the fund was not a complying superannuation fund in relation to:

(i) the current year of income; or

(ii) a year of income that is:

(A) later than that previous year of income; and

(B) earlier than the current year of income.

…

(6) Despite subsection (1), if, at all times during a year of income when a fund was in existence, the fund was, or was part of, an exempt public sector superannuation scheme, the fund is a complying superannuation fund in relation to the year of income for the purposes of the Income Tax Assessment Act.

An exempt public sector superannuation scheme is defined in section 10 of the SISA as follows:

exempt public sector superannuation scheme means a public sector superannuation scheme that is specified in regulations made for the purposes of this definition.

A public sector superannuation scheme is defined in section 10 of the SISA as follows:

public sector superannuation scheme means a scheme for the payment of superannuation, retirement or death benefits, where the scheme is established:

(a) by or under a law of the Commonwealth or of a State or Territory; or

(b) under the authority of:

(i) the Commonwealth or the government of a State or Territory; or

(ii) a municipal corporation, another local governing body or a public authority constituted by or under a law of the Commonwealth or of a State or Territory.

Part 3 of Schedule 1AA of the Superannuation Industry (Supervision) Regulations 1994 specifies the exempt public sector superannuation schemes for the 1997-98 and subsequent income years. Under the heading for the state in which you reside it states:

Schemes established by or operated under:

[various state Acts]

In the case of the Fund it is a scheme established by a certain state Act and is currently operated under another state Act.

Therefore, the Fund is a complying superannuation fund by virtue of subsection 45(6) of the SISA notwithstanding that it is also a CPF.

If the trustee of the other superannuation fund into which you intend to make contributions receives a notice from the Regulator stating that it is a complying fund in the 2011-12 income year, it will be a complying fund.

Therefore if you make a contribution to a complying fund or to the Fund, a CPF in the 2011-12 income year, this condition will be 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) of the ITAA 1997. 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:

(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.

Subsection 995-1(1) of the ITAA 1997 defines reportable employer superannuation contribution as follows:

reportable employer superannuation contribution has the meaning given by section 16-182 in Schedule 1 to the Taxation Administration Act 1953.

Section 16-182 in Schedule to the Taxation Administration Act 1953 (TAA) states:

(1) A reportable employer superannuation contribution, for an individual for an income year, is an amount that has been, is, or will be contributed in respect of the income year:

(a) by an employer of the individual, or an *associate of the employer, for the individual's benefit; and

(b) to a *superannuation fund or an *RSA;

to the extent that either or both of the following paragraphs apply:

(c) the individual has or has had, or might reasonably be expected to have or have had, the capacity to influence the size of the amount;

(d) the individual has or has had, or might reasonably be expected to have or have had, the capacity to influence the way the amount was, is or will be contributed so that his or her assessable income is reduced.

(2) However, an amount is not a reportable employer superannuation contribution to the extent that it is included in the individual's assessable income for the income year.

(3) For the purposes of this section, employer has the expanded meaning given by section 12 of the Superannuation Guarantee (Administration) Act 1992 (assuming that subsection 12(11) of that Act had not been enacted).

…

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 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. subsection 12(1) states that:

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 will be employed by your government employer in the period from 1 July 2011 to 30 June 2012. Accordingly, you will be an employee under common law and therefore will be an employee for the purposes of the SGAA during this period.

As you will be 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 and the 10% test will apply.

Applying 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.

Paragraph 63 of TR 2010/1 states:

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, reportable fringe benefits and reportable employer superannuation contributions in the 2011-12 income year as determined from the information provided will be as follows:

Salary and wages $0

Gross Business income $XXX

Reportable fringe benefits $0

Reportable employer superannuation contributions $XXX

Your assessable income, reportable fringe benefits and reportable employer contributions attributable to employment activities for the 2011-12 income year will be less than 10% of your total assessable income, reportable fringe benefits and reportable employer contributions.

Consequently you 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 will be under this age in the 2011-12 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 the trustee of the superannuation fund.

If you provide a written notice to the relevant fund stating your intention to claim a deduction for the personal superannuation contribution and you receive a written notice from the fund acknowledging your intention to claim a deduction for the personal superannuation contribution in the 2011-12 income year, this condition will be satisfied.

Deduction limits:

The only limitation to the amount that may be claimed as a deduction for personal superannuation contributions is under section 26-55 of the ITAA 1997. Section 26-55 states:

(1) There is a limit on the total of the amounts you can deduct for the income year under these provisions:

…

(d) section 290-150 (which is about deductions for personal superannuation contributions).

…

Do not include in the total an amount that you could also deduct under another provision of this Act, apart from section 8-10 (which prevents double deductions).

(2) The limit is worked out by subtracting from your assessable income all your deductions except:

(a) ^*tax losses; and

(b) (Repealed by No 169 of 1999)

(c) the amount you can deduct for the income year under section 393-5 (which provides for deductions for making *farm management deposits).

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

Conclusion

If you satisfy all the requirements to claim a deduction for personal superannuation contributions under section 290-150 of the ITAA 1997 in the 2010-11 income year, you will be eligible to claim a deduction in the 2011-12 income year to the extent that it does not add to or create a loss.