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Ruling

Subject: Deduction for personal superannuation contributions

Questions

1. Does your client need to satisfy the maximum earnings as an employee condition under subsection 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997) for the 20XX-XX income year?

2. Will the superannuation contributions be deductible under section 290-150 of the ITAA 1997 for the 20XX-XX income year?

Answers

1. Yes.

2. No.

This ruling applies for the following periods:

Year ended 30 June 2011.

The scheme commences on:

1 July 2010.

Relevant facts and circumstances

Your client made personal superannuation contributions to their superannuation fund during the 20XX-XX income year.

Your client is employed on a project (Project 1) and works according to the requirements of the position.

An entity (Entity 1) is the employing entity in support of a joint venture project (Joint Venture Project1) which is responsible for the delivery of stage 1 of Project 1.

Your client's secondment to Joint Venture Project 1 means that he is bound by the policies and procedures and standards of the project.

The contract of employment (the contract) between Entity 1 (the employer) and your client (the employee) outlines the following:

The contract represents a contract of service.

Your client is employed on a full time basis.

Your client is paid a net Superannuation Allowance as part of their gross home country salary component. The contract states, "Contributions are based on your Australian total cash component of your remuneration package as varied from time to time and shall be made at a rate that at least satisfies the statutory obligations of the company in relation to Australian Superannuation."

Your client is entitled to personal/ carers leave.

Your client can accrue up to 28 days annual leave per annum whilst working under the terms of the contract.

You confirm your client has not been in receipt of any other income for the 20XX-XXincome year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 290-150.

Income Tax Assessment Act 1997 Subsection 290-150(1).

Income Tax Assessment Act 1997 Subsection 290-150(2).

Income Tax Assessment Act 1997 Subsection 290-150(3).

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 Subsection 290-170(1).

Income Tax Assessment Act 1997 Subsection 290-170(3).

Income Tax Assessment Act 1997 Section 292-15.

Superannuation Guarantee (Administration) Act 1992 Section 12

Superannuation Guarantee (Administration) Act 1992 Subsection 12(3)

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

Reasons for decision

Summary

Your client is engaged in activities that would result in him being considered an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992. Accordingly, the maximum earnings as an employee condition applies.

Your client will not be eligible to claim a deduction for the personal superannuation contributions made to their nominated superannuation fund as not all of the conditions for deductibility were met for the 20XX-XX income year.

Detailed reasoning

Deduction for personal deductible 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 (or their dependants after their death) 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 of the ITAA 1997 must also be satisfied for the person to claim the deduction.

According to the facts, the conditions in section 290-160 have not been met. This will be discussed in further detail below.

Maximum earnings as an employee condition:

The condition in section 290-160 of the ITAA 1997 requires that if a taxpayer is engaged in any activities that result in them being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA), then less than 10% of the total of the following must be attributable to those activities:

· their assessable income for the income year;

· their reportable fringe benefits (RFB) for the income year; and

· the total of their reportable employer superannuation contributions (RESC) for the income year.

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 had not been enacted).

Subsection 12(3) of the SGAA 1992 states that if a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.

Based on the copy of the employment contract provided, your client is acting within the role of an employee. The contract states that the contract between your client and the employer is one of a contract of service as opposed to a contract for service. In addition, your client is working under a contract that is wholly or principally for the labour of your client. As such, an employee-employer relationship exists.

Further, the terms and conditions of the contract state that the employer has provided for a superannuation allowance that is "made at a rate that at least satisfies the statutory obligations of the company in relation to Australian Superannuation."

Your client is also entitled to other benefits such as annual leave.

In the application of the maximum earnings test, the relevant 'employment' activity need not be an activity in Australia. The 'employment' income of an Australian resident employed overseas by a foreign employer will be counted in the maximum earnings test of the income is assessable income.

Based on the above, your client is considered an employee for the purposes of the SGAA 1992.

From the facts, your client has not been in receipt of any other income for the 20XX-XX income year and therefore the income from his employment activities represents more than 10% of the total of his assessable income, RFB and RESC for that year. As such, the maximum earnings as an employee condition is not satisfied.

Conclusion:

As not all of the conditions for deductibility under section 290-150 of the ITAA 1997 have been satisfied in relation to the 20XX-XX income year, your client is not entitled to claim a deduction for the personal superannuation contributions made to their nominated superannuation fund in the 20XX-XX income year.