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Ruling

Subject: Deduction for Personal Superannuation Contribution

Question:

Can you claim a deduction for a personal superannuation contribution made in the 2009-10 income year under section 290-150 of the Income Tax Assessment Act 1997?

Answer:

No.

This ruling applies for the following period:

Year ended 30 June 2010.

The scheme commences on:

1 July 2009.

Relevant facts and circumstances:

You have a superannuation account with a complying superannuation fund (the fund).

You made a personal contribution into your superannuation account with the fund, and your contribution was received by the Fund in late April 2010. You were 65 years of age at this time.

You are a partner with your spouse in a partnership. In the 2009-10 income year the partnership received income from rents and interest. A share of the net income of the partnership was distributed to you.

You state that during the 2009-10 income year you were employed for over 40 hours in a 30 day period to comply with the work test on who can contribute to superannuation, and that your employment consisted of maintenance work on properties and property management.

In early May 2011 your income tax return for the 2009-10 income year was lodged with the Australian Taxation Office (ATO). Your partnership distribution was the only income you disclosed in your return for this income year. You also claimed a deduction for your personal superannuation contribution in your return. An income tax assessment for the 2009-10 income year was issued to you several days later, and the deduction was allowed in this assessment.

You state that the fund incorrectly processed your contribution as an employer contribution rather than as a member voluntary contribution. In July 2011 you contacted the fund about the processing of your contribution.

In a letter sent to you in mid August 2011, the fund advised you that your superannuation account had been adjusted to show your contribution as a member voluntary contribution, and the contributions tax had been refunded.

Several days after you had received the letter from the fund, you lodged a personal tax deduction notice for the 2009-10 income year (the notice) with the fund. In the notice you stated your intention:

§ to claim a tax deduction in respect of part of your total personal contributions for the 2010 financial year; and

§ not to claim a tax deduction for the remaining amount of your personal contributions.

In a letter sent to you at the end of August 2011, the fund advised you that the notice is not valid as you attempted to claim a deduction on your contribution for the 2009-10 financial year. You were further advised in this letter that to claim the deduction for this financial year, you needed to lodge the notice no later than the end of the 2010-11 financial year.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 290-150,

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

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 Paragraph 290-170(1)(a),

Income Tax Assessment Act 1997 Paragraph 290-170(1)(b),

Income Tax Assessment Act 1997 Paragraph 290-170(1)(c),

Superannuation Industry (Supervision) Regulations 1994 Subregulation 1.03(1),

Superannuation Industry (Supervision) Regulations 1994 Subregulation 7.01(3) and.

Superannuation Industry (Supervision) Regulations 1994 Subregulation 7.04(1).

Reasons for decision

Summary

A person can claim a deduction in respect of personal superannuation contributions made to a complying superannuation fund provided all the requirements of the legislation are met. One of those requirements is the lodgment of a notice of intent to claim a deduction in respect of personal superannuation contributions (the notice).

The notice must be lodged with the trustee of the relevant superannuation fund by no later than:

(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.

The Commissioner of Taxation does not have the discretion to allow an extension of this time in which to lodge the notice.

In this case, the notice of intent should have been given to the trustee of the fund before your tax return for the 2009-10 income year was lodged. Therefore you are not entitled to claim a deduction in respect of your personal contributions for this income year.

The Commissioner also does not have the discretion to allow a deduction for your personal contribution and to treat your contribution as a concessional contribution.

Detailed reasoning

Deductions for personal superannuation contributions

A person must satisfy the conditions in section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997) before they can claim a deduction in respect of personal contributions made for the purpose of providing superannuation benefits for themselves, or their dependants after their death.

Further, subsection 290-150(2) of the ITAA 1997 provides that the conditions in sections 290-155, 290-160 (if applicable), 290-165 and 290-170 must all be satisfied before the person can claim a deduction for the contributions made in that income year. These conditions are explained in detail in Taxation Ruling TR 2010/1 (TR 2010/1) entitled 'Income Tax: superannuation contributions'.

Notice of intent to deduct conditions

Subsection 290-170(1) of the ITAA 1997 provides that for a person to be eligible for a deduction for a personal superannuation contribution, the person must give a valid notice of their intention to claim the deduction to the trustee of their superannuation fund (the fund trustee), and must receive an acknowledgment of receipt of the notice.

Paragraph 290-170(1)(b) of the ITAA 1997 states:

the notice must be given before:

(i) 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

(ii) otherwise - the end of the next income year; …

In relation to the requirements of subsection 290-170(1) of the ITAA 1997, the Commissioner notes in paragraph 263 of TR 2010/1 that:

A person who intends to deduct their personal superannuation contributions must give to their superannuation provider a valid notice in the approved form before lodging their income tax return for the year (or within 12 months of the end of the income year if they have not lodged their return by that time). The trustee must also acknowledge receipt of the notice. [emphasis added]

Notice requirements not satisfied

You made a personal contribution into your superannuation account with the fund during the 2009-10 income year.

Your contribution was received by the Fund in late April 2010, and the fund processed your contribution as an employer contribution rather than as a member voluntary contribution.

Your income tax return for this income year was lodged In early May 2011. As your tax return has been lodged, the required time by which a valid notice of intent to claim a deduction must be lodged is the lodgement date of your return.

An income tax assessment for this income year was issued to you several days later.

In July 2011 you contacted the Fund about the processing of your contribution. In a letter sent to you in mid August 2011, the fund advised you that your superannuation account had been adjusted to show your contribution as a member voluntary contribution, and the contributions tax had been refunded.

Several days after you had received the letter from the fund, you lodged a personal tax deduction notice for the 2009-10 income year (the notice) with the fund. In the notice you stated your intention:

§ to claim a tax deduction in respect of part of your total personal contributions for the 2010 financial year; and

§ not to claim a tax deduction for the remaining amount of your personal contributions.

You state that the fund has advised you that it is too late for them to process the notice. In this respect, the fund advised in a letter sent to you at the end of August 2011, that the notice is not valid as you attempted to claim a deduction on your contribution for the 2009-10 financial year.

You were further advised in this letter that to claim the deduction for this financial year, you needed to lodge the notice no later than the end of the 2010-11 financial year.

In this case, the facts show that you did not provide the fund trustee with a valid notice of intent in respect of your contribution before each of the following dates:

§ the lodgement date of your income tax return for the 2009-10 income year;

§ the date on which your income tax assessment for this income year was issued; and

§ the end of the following income year (i.e. the 2010-11 income year).

Therefore, the requirement under paragraph 290-170(1)(b) of the ITAA 1997 has not been satisfied. Consequently, it is too late for the fund trustee to accept your notice.

As a result, the fund trustee cannot treat your contribution as a concessional contribution. This means the fund trustee cannot amend the fund's income tax return to include your contribution as income. Further, the fund trustee cannot amend your superannuation account to deduct income tax in relation to your contribution.

A deduction is not allowable for your contribution

You claimed a deduction for your personal contribution in your income tax return for the 2009-10 income year. This deduction was wholly allowed in your assessment for this income year.

As noted above, the conditions in sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997 must all be satisfied before a person can claim a deduction for the contributions made in that income year. In this instance, the requirements of section 290-170 were not satisfied.

Therefore, you are not entitled to claim a deduction in respect of the personal contribution you made during this income year.

Discretion

There is no provision in section 290-170 of the ITAA 1997 which extends the time limit specified in paragraph 290-170(1)(b) for lodging these notices.

Similarly, neither section 290-170 or any other provision of the ITAA 1997 gives the Commissioner the power to exercise a discretion to grant an extension of time for a person to lodge a valid notice under section 290-170.

Further, section 290-170 does not give the Commissioner the power to exercise a discretion to allow a deduction for your contribution and treat your contribution as a concessional contribution, where any of the requirements of this provision have not been satisfied. 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.

As a result, the Commissioner cannot accede to your request to have your personal contribution treated as a concessional contribution, and to arrange for the payment of income tax in relation to your contribution.

Conclusion

As the notice of intent to deduct conditions have not been satisfied, the personal contributions you made during the 2009-10 income year are not deductible under section 290-150 of the ITAA 1997.

Further issues for consideration

Acceptance of your contributions by the Fund in the 2009-10 financial year

You were 65 years of age the date on which your personal contribution was received by the fund.

In addition, you stated in your personal tax deduction notice the total amount of the personal contributions you made to the fund during this financial year.

In light of these facts, the issue arises as to whether the Fund can accept the contributions you made in the 2009-10 financial year, under subregulation 7.04(1) of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations).

There are two major categories of contributions: mandated contributions and non-mandated contributions.

Mandated contributions are contributions made by an employer under a law or an industrial agreement for the benefit of a fund member. These include:

§ contributions made by employers to meet their obligations under the Superannuation Guarantee (Administration) Act 1992 (SGAA);

§ superannuation guarantee shortfall components;

§ award-related contributions; and

§ some payments from the superannuation holding accounts special account.

Non-mandated contributions include voluntary superannuation contributions such as:

§ contributions made by employers over and above their SGAA or award obligations;

§ personal contributions made by employees;

§ personal contributions made by self-employed people; and

§ other personal contributions and spouse contributions.

For members aged 65 but less than 70, a complying superannuation fund may only accept non-mandated contributions where (item 2 of subregulation 7.04(1)):

§ the member is gainfully employed on at least a part-time basis; and

§ the member has quoted their tax file number (TFN).

Subregulation 7.04(1) of the SIS Regulations governs your ability to contribute to a complying superannuation fund.

This subregulation provides that the Fund can accept your personal contributions in the 2009-10 financial year only if you satisfied the work test for gainful employment prescribed in item 2 of subregulation 7.04(1) at the time you made your contributions.

Under subregulation 7.01(3) of the SIS Regulations a person is gainfully employed on a part-time basis during a financial year if the person was gainfully employed for a least 40 hours in a period of not more than 30 consecutive days in that financial year.

Under subregulation 1.03(1) of the SIS Regulations 'gainfully employed' is defined as meaning:

employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.

The issue of a complying superannuation fund being able to accept contributions is discussed by the Australian Prudential Regulation Authority (APRA) in APRA Superannuation Circular I.A.1, entitled Contribution and Benefit Accrual Standards for Regulated Superannuation Funds.

At paragraph 22 the Circular states:

'Gainfully employed' means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment. The concept of 'gain or reward' envisages receipt of remuneration such as salary or wages, business income, bonuses, commissions, fees or gratuities, in return for personal exertion.

As stated in paragraph 22 of the Circular, for a person to be gainfully employed, the person must be in receipt of remuneration in return for their personal exertion.

As noted in the facts, you are a partner with your spouse in a partnership. In the 2009-10 income year the partnership received income from rents and interest. Your share of the net income of the partnership was the only income you disclosed in your return for this income year.

You state that during the 2009-10 income year you were employed for over 40 hours in a 30 day period to comply with the work test for gainful employment and allow you to contribute to superannuation. You also state that your employment consisted of maintenance work on properties and property management. However, you provided no evidence to indicate that you received any remuneration in return for your work, other than the partnership distribution you received for this income year.

The fact that a person is engaged in the management and maintenance of rental properties does not amount to that person being in receipt of remuneration in return for their personal exertion. In that circumstance, the income received by the person is for the rental of property. It follows that the person would not generally be considered to be gainfully employed in respect to the maintenance of rental properties.

In addition, a partner cannot be an employee of a partnership. Therefore, partnership distributions received by a partner are not considered to be gain or reward for gainful employment. In this situation, your partnership distribution was the only income you received for the 2009-10 income year, and there is no evidence to indicate that you received any other payment for your personal exertion during this income year.

In light of the foregoing, it is considered that your activities as a partner in managing and maintaining rental properties did not constitute gainful employment. Hence, it is considered that you were not gainfully employed during the 2009-10 financial year.

In view of all the above, it is considered that you did not satisfy the work test for gainful employment at the time your contribution was received by the fund. Accordingly, you should notify the fund trustee that you should not have made this contribution because you were not gainfully employed at that time.

Further, it is considered that the fund was not able to accept all the contributions you made in the 2009-10 financial year, under the provisions of subregulation 7.04(1) of the SIS Regulations.

Therefore, you should contact the fund trustee and request that your superannuation account be adjusted to accordingly reflect this circumstance.