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Ruling

Subject: deduction for personal superannuation contributions

Question

Will your client be able to claim a deduction for personal superannuation contributions in the 2010-11 income year under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

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

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 is over 60 years of age.

Your client made a personal superannuation contribution to an entity (Entity 1) during the 2010-11 income year.

Your client was a member of an entity (Entity 2) for several years in a voluntary position with no financial reward given to him.

During the 2010-11 income year, Entity 2 changed its policy and introduced payments to volunteers and your client received a payment summary showing wages. Your client was paid superannuation guarantee by Entity 2.

You provided your client's gross assessable income amounts for the 2010-11 income year being $X.

You advised your client is carrying on the business of share trading and had gross receipts from this activity of $Y

You have provided a statement from Entity 1 indicating they have treated the contribution as a personal deductible contribution. Based on this they have withheld 15% contributions tax.

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)

Superannuation Guarantee (Administration) Act 1992 Section 12

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

Taxation Administration Act 1953 Subsection 357-110(1)

Reasons for decision

Summary

Your client will be eligible to claim a deduction for the personal superannuation contributions he made to his nominated superannuation fund as all of the conditions for deductibility were met for the 2010-11 income year.

Detailed reasoning

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.

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 the contribution is made.

In this case, your client made personal superannuation contributions to a complying superannuation fund, Macquarie ADF Super, in the 2010-11 income year. Therefore this requirement is satisfied.

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:

o their assessable income for the income year,

o their reportable fringe benefits total for the income year

o the total of their reportable employer superannuation contributions 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).

Taxation Ruling TR 2010/1 entitled 'Income tax: superannuation contributions' sets out the Commissioner's view on contributions made to a superannuation fund, an approved deposit fund or a retirement savings account.

Part B of TR 2010/1 explains some aspects of the rules in Division 290 of the ITAA 1997 that apply if a superannuation contribution for an employee or a personal contribution is to be deducted. At paragraphs 57and 58, it states:

Deducting personal contributions

Maximum earnings test

57. 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.

58. 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.

The facts state that Entity 2 changed its policy and began renumerating their volunteers. Despite your client's efforts to arrange for the University not to remunerate him, your client ended up being paid and being issued with a payment summary. Entity 2 also paid Superannuation Guarantee on this amount on your client's behalf. As such, section 290-160 will apply pursuant to Subsection 290-160(1) and your client will be treated as an employee for the purposes of SGAA 1992.

Your client's assessable income (including the business income of $Y), reportable fringe benefits and reportable employer superannuation contributions for the 2010-11 income year is $X + $Y.

The money attributed to activities your client undertook as an employee is less than 10% of the total of assessable income, reportable fringe benefits and reportable employer superannuation contributions for the 2010-11 income year. As such, your client has satisfied this condition.

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.

Your client meets this age-related condition.

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:

o the date you lodge your income tax return for the income year in which the contribution was made; or

o 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:

o you are a member of the fund or the holder of the retirement savings account (RSA);

o 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);

o the trustee or RSA provider has not begun to pay a superannuation income stream based on the contribution; or

· before the notice is given:

o a contributions splitting application has not been made in relation to the contribution; and;

o the trustee or RSA provider to which you made the application has not rejected the application.

You have provided an account summary statement indicating the trustee of your client's nominated superannuation fund has acknowledged a valid notice under section 290-170 of the Income Tax Assessment Act 1997 (ITAA 1997) has been lodged with them. Consequently, your client meets this condition.

Deduction limits:

From 1 July 2007 the previous age based limits on deductions for personal superannuation contributions have 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 years' tax losses and any deductions for farm management deposits) from a taxpayer's assessable income. Thus a deduction for personal superannuation contributions cannot add to or create a loss in the relevant income year the deduction is to be claimed.

Contribution limits and the concessional contributions cap:

Concessional contributions made to superannuation funds in the 2010-11 income year are subject to an annual cap of $25,000. Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a person.

However, between 1 July 2007 and 30 June 2012, a transitional concessional contributions cap will apply. The transitional concessional contributions cap is $50,000 for 2010-11 income year for people aged 50 or over (subsection 292-20(2) of the Income Tax (Transitional Provisions) Act 1997).

As your client is over 50 years of age at the end of the 2010-11 income year, the transitional concessional contributions cap of $50,000 will apply.

Conclusion:

As all of the conditions for deductibility under section 290-150 of the ITAA 1997 have been satisfied in relation to the 2010-11 income year, your client is entitled to claim a deduction for the personal superannuation contributions made to their complying superannuation fund in the 2010-11 income year to the extent it does not add to or create a loss.