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Ruling

Subject: Deduction for Personal Superannuation Contributions

Question:

Can a notice of intent to deduct contributions made for the 2007-08 income year be varied under section 290-180 of the Income Tax Assessment Act 1997?

Answer:

No.

This ruling applies for the following period:

Year ended 30 June 2008.

The scheme commences on:

1 July 2007.

Relevant facts and circumstances

Your client, who is over age 55 but under age 65, had a superannuation account with a complying superannuation fund (the fund).

Your client made personal contributions into the fund during the 2007-08 income year.

Early in the 2008-09 income year your client completed and lodged a notice of intent to claim a deduction for these personal contributions (the original notice), after your client and your client's spouse had sold a business.

In an acknowledgement notice dated on the day that the original notice was lodged, the fund confirmed that your client intended to claim the full amount of the personal contributions as a tax deduction, and that the contributions will be taxed at the rate of 15% as part of the Fund's assessable income. This acknowledgement notice replaced all previous acknowledgements sent to your client for the 2007-08 income year.

Also on this same day, your client commenced a superannuation income stream from the superannuation account into which the personal contributions were made.

Upon the completion of an income tax return for the 2007-08 income year in December 2008, your client wanted to vary down the original section 290-170 notice to claim a reduced deduction in respect of the personal contributions.

Your client sought to vary the original notice of intent because the deduction claimed on the original notice would have created a loss for your client in this income year.

Prior to lodging the income tax return, your client attempted on several occasions to contact a financial advisor to have the original notice varied. Your client was unable to contact the financial advisor at this time because the financial advisor's office was closed due to the Christmas holidays, and the financial advisor was on annual leave.

Approximately four months after the original notice was lodged with the fund, your client's return for the 2007-08 income year was lodged with the Australian Taxation Office (ATO). Your client claimed the reduced deduction for the personal superannuation contributions in the return for this income year.

Subsequently, an income tax assessment for this income year was issued to your client, and the deduction claimed in the return was allowed in this assessment.

Your client made further attempts to contact the financial advisor around this time. However, the financial advisor's office was closed.

Once your client made contact with the financial advisor, your client lodged a notice to vary the original notice of intent for the 2007-08 income year (the Variation) with the fund trustee.

It is stated that the Variation was lodged with the fund trustee a few months after your client's income tax return was lodged. In the Variation your client stated that they wish to reduce the original concessional contributions from the full amount of these contributions to the amount claimed in your client's tax return for this income year.

Your client also lodged a notice with the fund. In this notice your client stated an intent to claim a reduced tax deduction in respect of the personal contributions.

This notice also set out a pre-printed declaration. Your client did not complete the declaration when the notice was signed, because your client did not confirm the 'financial year' to which the notice was to apply.

It is stated that after your client had lodged these notices, the fund trustee informed you that a section 290-170 notice cannot be varied after the earlier of:

o your client lodging a tax return for the year in which the contribution was made or

o the end of the income year after the one in which the contribution was made.

You were also informed that as the fund trustee had begun to pay a superannuation income stream based in whole or part on the contribution, your client was not permitted to submit a variation.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 290-170,

Income Tax Assessment Act 1997 Paragraph 290-170(2)(c),

Income Tax Assessment Act 1997 Section 290-180,

Income Tax Assessment Act 1997 Subsection 290-180(1),

Income Tax Assessment Act 1997 Subsection 290-180(2),

Income Tax Assessment Act 1997 Subsection 290-180(3)

Income Tax Assessment Act 1997 Subsection 290-180(3A),

Income Tax Assessment Act 1997 Paragraph 290-180(3A)(c) and

Income Tax Assessment Act 1997 Subsection 290-180(4).

Reasons for decision

Summary

Your client's original notice of intent to claim a deduction, for personal contributions made in the 2007-08 income year, was valid.

Your client cannot vary the original notice for three reasons:

· the Variation was given to the fund trustee after the date on which your client lodged an income tax return for the income year to which the original notice relates;

· as no part of your client's deduction claim in respect of the contributions was disallowed in your client's income tax assessment for this income year, the exemption from the above time limit for lodging the Variation does not apply; and

· the personal contributions covered by the original notice had already been used to commence the payment of a superannuation income stream to your client.

Consequently, the legislation prevents your client from varying the original notice.

The Commissioner does not have the discretion to allow your client to vary the original notice.

Detailed reasoning

Personal superannuation contributions made in the 2007-08 income year

Where all the conditions in subdivision 290-C of the Income Tax Assessment Act 1997 (ITAA 1997) are satisfied, a person can claim a deduction for personal contributions the person makes to a superannuation fund.

These conditions are explained in detail in Taxation Ruling TR 2010/1 'Income Tax: superannuation contributions' (TR 2010/1).

One of these conditions, in section 290-170 of the ITAA 1997, is that the member making a contribution must provide a valid notice of intent to claim a deduction (the notice) to their superannuation fund. The notice must be in the approved form and must have been given to the fund trustee by the required time. The member must also have been given an acknowledgment of receipt of the notice by the fund trustee.

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

Variation of a notice of intent to deduct conditions

In accordance with subsection 290-180(1) of the ITAA 1997 a person cannot revoke or withdraw a valid notice of intent in relation to a personal contribution. However, a valid notice can be varied under section 290-180 of the ITAA 1997 subject to a number of restrictions as follows:

290-180(2) You can vary a valid notice, but only so as to reduce the amount stated in relation to the contribution (including to nil). You do so by giving notice to the trustee or the RSA provider in the approved form.

290-180(3) However, you cannot vary a valid notice after:

(a) if you have lodged your income tax return for the income year in which the contribution was made on a day before the end of the next income year - the end of that day; or

(b) otherwise - the end of the next income year.

290-180(3A) The variation is not effective if, when you make it:

(a) you were not a member of the fund or the holder of the RSA; or

(b) the trustee or RSA provider no longer holds the contribution; or

(c) the trustee or RSA provider has begun to pay a superannuation income stream based in whole or part on the contribution.

290-180(4) Subsection (3) does not apply to a variation if:

(a) you claimed a deduction for the contribution (or a part of the contribution); and

(b) the deduction is not allowable (in whole or in part); and

(c) the variation reduces the amount stated in relation to the contribution by the amount not allowable as a deduction.

Relevant to this case are the restrictions in section 290-180 concerning:

· the time limits for your client to lodge a variation notice with the fund trustee (subsection 290-180(3)), and

· whether, at the time the variation notice was given, the contributions (or part of these contributions) have been used to commence the payment of a superannuation income stream to your client (paragraph 290-180(3A)(c)).

In considering whether the time limits prescribed in subsection 290-180(3) apply in this instance, the provisions of subsection 290-180(4) will also be considered.

The requirements of subsection 290-180(3) of the ITAA 1997

The required time by which your client must vary a notice with the fund trustee is specified in subsection 290-180(3) of the ITAA 1997. Varying notices are subject to the same time constraints as the lodgment of an original notice of intent.

Subsection 290-180(3) of the ITAA 1997 requires that your client must vary a valid notice in respect of the contribution, before a tax return for the 2007-08 income year is lodged or by 30 June 2009, whichever is the earlier.

In this respect, your client was advised by the fund trustee that a section 290-170 notice cannot be varied after the earlier of your client lodging a tax return for the income year in which the contribution was made, or the end of the following income year after the income year in which your client made the contribution.

The circumstances described in the facts shows that your client lodged the Variation with the fund trustee after the lodgement of your client's income tax return.

Consequently, it is too late for the fund trustee to accept the Variation from your client. As a result, the Variation will not be effective, and the fund trustee cannot accept it.

Therefore in accordance with subsection 290-180(3) of the ITAA 1997, your client cannot vary the valid notice of intent covering these personal contributions.

The requirements of subsection 290-180(4) of the ITAA 1997

Under the provisions of subsection 290-180(4) of the ITAA 1997, the time limits prescribed in subsection 290-180(3) do not apply if a deduction was claimed for the personal contributions, and the deduction is disallowed.

Your client claimed a deduction for the personal contributions in their return for this income year.

An income tax assessment for this income year was issued to your client, and the deduction was wholly allowed in this assessment.

As the deduction your client claimed in the return was allowed in the assessment, the provisions of subsection 290-180(4) of the ITAA 1997 do not apply to your client in this instance. Rather, the time limits in subsection 290-180(3) continue to apply in relation to the lodgment of the Variation.

As such, the Variation remains ineffective in accordance with subsection 290-180(3).

The requirements of subsection 290-180(3A) of the ITAA 1997

As noted above, subsection 290-180(3A) of the ITAA 1997 provides that a person cannot vary a valid section 290-170 notice where:

· the person is no longer a member of the fund,

· the fund trustee no longer holds the contribution, or

· the fund trustee has commenced to pay an income stream based in whole or part on the contribution.

This provision mirrors the condition for the validity of notices set out in paragraph 290-170(2)(c) of the ITAA 1997. In this respect, paragraph 69 of TR 2010/1 discusses the factors to be considered in the interpretation of paragraph 290-170(2)(c) of the ITAA 1997, as follows:

69. A notice is not valid in certain circumstances, including a notice given, when

· the person is no longer a member of the fund (for example, because the person's benefits have been paid to them or they have rolled over their benefits in full to another fund);

· the superannuation provider no longer holds the contribution (for example, the trustee may no longer hold a contribution where a person has been paid a lump sum superannuation benefit or had part of their benefit rolled over to another superannuation fund); or

· the superannuation provider has commenced to pay an income stream based in whole or part on the contribution. [emphasis added]

Because subsection 290-180(3A) of the ITAA 1997 mirrors the condition specified in paragraph 290-170(2)(c), the factors discussed in paragraph 69 of TR 2010/1 are also considered relevant in the interpretation of subsection 290-180(3A).

In this instance, the restriction in subsection 290-180(3A) that applies to your client is specified in paragraph 290-180(3A)(c). As noted above, this restriction provides that a person cannot vary a valid notice of intent where the fund trustee has commenced to pay an income stream based in whole or part on the contribution covered by the notice. In this respect, the Commissioner states in paragraph 72 of TR 2010/1 that:

72. An income stream is based in whole or part on the contribution if it is commenced from the superannuation interest to which the contribution was made - see Example 11.

Example 11 - invalid notice of intention to deduct in paragraphs 100 to 102 of TR 2010/1 describes the circumstances where a person gives a section 290-170 notice to the fund after a pension using part of the person's superannuation interest in the fund was commenced.

In paragraph 101 of TR 2010/1 the Commissioner explains that such a notice will be invalid, because the fund will have begun to pay an income stream based in whole or in part on the contribution. This example is of particular relevance to the interpretation of paragraph 290-180(3A)(c) of the ITAA 1997.

Based on the above, an attempt to vary a notice given under section 290-170 of the ITAA 1997, will not be effective if it is given by a member after the superannuation provider has commenced to pay a superannuation income stream based in whole or in part on the contribution.

The requirement of paragraph 290-180(3A)(c) of the ITAA 1997 is not satisfied

On the same day that your client lodged the original notice of intent with the fund trustee, your client commenced to receive an income stream from the superannuation account into which the personal contributions were made.

A number of months later your client lodged the Variation with the fund trustee in respect of the personal contributions.

The Variation stated your client's intent to reduce the tax deduction they wished to claim in respect of the contributions from the full amount of these contributions to the amount claimed in your client's tax return for this income year.

You state that after your client had lodged the Variation, you were advised by the fund trustee that as a superannuation income stream based in whole or part on the contributions had commenced to be paid, your client could not submit the notice.

In view of the above and paragraph 290-180(3A)(c) of the ITAA 1997, your client's valid notice of intent covering the personal contributions cannot be varied. This is because your client has started receiving a superannuation income from the fund, based in whole or in part on these contributions.

In this instance, the contributions which were covered by the original notice of intent were included in your client's superannuation interest, and the contributions were used to commence the payment of an income stream to your client from the fund.

For these reasons it is too late for the trustee to accept the Variation from your client in relation to the contributions. In accordance with paragraph 290-180(3A)(c) of the ITAA 1997 the trustee cannot accept it.

Commissioner's discretion to vary the notice

You requested that due to the circumstances surrounding your client's attempts to lodge the Variation, the Commissioner allow the Variation lodged with the fund.

The Commissioner can only exercise a discretion when he is given that power under a law he administers.

Unfortunately, section 290-180 of the ITAA 1997 does not give to the Commissioner the power to exercise a discretion to grant an extension of time for a person to lodge a variation of a valid notice of intent under this provision.

Further, section 290-180 does not give the Commissioner the power to exercise a discretion to vary a valid section 290-170 notice where any of the requirements of this provision have not been satisfied. In both cases this is regardless of the reasons those requirements were not met, or the extent to which those reasons were within or beyond a taxpayer's control.

Consequently, the Commissioner has no discretion to vary your client's original notice.

In regards to your client's attempts to lodge the Variation, it is noted that your client first attempted to lodge the Variation several months after your client commenced an income stream based in whole or in part on those contributions. The date by which the Variation had to be lodged by your client was the date your client commenced their superannuation income stream.

Your client's original section 290-170 notice cannot be varied

In view of all the above, your client does not satisfy the requirements prescribed in section 290-180 of the ITAA 1997. Hence your client cannot vary the valid notice of intent covering their personal contributions.

Therefore, the amount of the deduction stated in the original notice of intent, as confirmed in the acknowledgement notice issued by the fund, could not and cannot be varied by the fund trustee.

Conclusion

As a deduction in respect of your client's personal contributions was allowed in the income tax assessment for the 2007-08 income year, and therefore no deduction in relation to the contributions was disallowed, the legislation prevents your client from varying the original notice of intent covering these personal contributions.