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Subject: Deduction for personal superannuation contributions

Questions:

Are you entitled to claim a deduction under section 290-150 of the Income Tax Assessment Act 1997 for personal superannuation contributions for the 2011-12 income year?

Advice/Answers:

Yes.

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 over 55 and under 75 years of age.

Your employment with an employer (the employer) ceased a few years ago.

You have been on weekly compensation payments for some years.

You wrote to the employer asking them to deduct an amount per week of your compensation payment to go to your superannuation account.

Your employer replied stating that the matter was referred to their Workcover agent, (the agent) and that the Technical Manager there had advised that the employer was not to make superannuation deductions.

You wrote to the agent querying the above and then you wrote to them again.

You lodged a complaint with the agent about the case.

The agent replied stating that they had no involvement with salary sacrifice and it has to be discussed with the employer.

You requested the employer to sacrifice an amount per week of your compensation payment into your superannuation account.

The employer advised that as your employment had ceased 9% superannuation guarantee was not payable on worker's compensation payments and they do not deduct salary sacrifice amounts.

You have advised your gross income for the 2011-12 income year which may increase if you receive a dividend prior to 30 June 2012. You do not expect to receive any reportable fringe benefit.

You intend to make a contribution to your superannuation fund and to claim a tax deduction for it.

You will provide a notice to the trustee of the complying super fund and expect to receive a notice of acknowledgement from the trustee prior to the lodgement of your 2011-12 income tax return.

You have advised that you have not been employed in the 2011-12 income year.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 26-55.

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 Subsection 290-160(1).

Income Tax Assessment Act 1997 Section 290-165.

Income Tax Assessment Act 1997 Section 290-170.

Income Tax Assessment Act 1997 Subsection 290-170(2).

Income Tax Assessment Act 1997 Section 292-15.

Income Tax Assessment Act 1997 Section 292-25.

Income tax (Transitional Provisions) Act 1997 Section 292-20.

Superannuation Guarantee (Administration) Act 1992 Section 12.

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

Superannuation Guarantee (Administration) Act 1992 Section 19.

Superannuation Guarantee (Administration) Act 1992 Paragraph 27(1)(c).

Reasons for decision Question number

Summary

You are eligible to claim a deduction for personal superannuation contributions in the 2011-12 income year as all the required conditions for claiming the deduction will be met.

Detailed reasoning

Deduction for personal superannuation contribution

Under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997) a taxpayer can claim a deduction for a personal contribution they make to a superannuation fund for the purpose of providing superannuation benefits for themselves provided the conditions in sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997 are satisfied.

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.

In this case, you will be making a contribution to your superannuation fund, a complying superannuation fund and therefore 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), and secondly that the activities result in the taxpayer being treated as an employee for the purposes of 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.

In essence, the relevant test is whether less than 10% of a taxpayer's assessable income and reportable fringe benefits 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 (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, which states that:

12(1) 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 were not employed by the employer in the period from 1 July 2011 to 30 June 2012 as your employment with them had terminated before then. You have advised that you have not been employed by any other employer in the 2011-12 income year. Accordingly, you were not an employee under common law and were therefore not an employee for the purposes of the SGAA during this period.

Paragraphs 246 and 247 of Income Tax Ruling TR 2010/1 (TR 2010/1) entitled, 'Income tax: superannuation contributions' state:

246. Those persons who are engaged in an 'employment' activity in the income year in which they make a contribution need to meet the maximum earnings test.

247. Those persons who have not engaged in an 'employment' activity in the income year in which they make a contribution are not subject to this earnings test. For example, a person who, although no longer employed, is receiving workers' compensation payments, is not subject to the maximum earnings test.

Consequently, as you were not engaged in employment activity in the 2011-12 income year you do not need to meet the maximum earnings test condition.

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 trustee of the superannuation fund.

You intend to provide a written notice to the fund stating your intention to claim a deduction for the personal superannuation contribution. You also expect to receive a written notice from the fund acknowledging the intention to claim a deduction for the personal superannuation contribution. Therefore this condition will be satisfied.

Deduction limits:

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 year's tax losses and any deductions for farm management losses) from a taxpayer's assessable income. Thus a deduction for personal superannuation contributions cannot add to or create a loss.

In this case, all the conditions for claiming a deduction have been satisfied.

Contribution limits:

Concessional contributions made to superannuation funds are subject to an annual cap. For the 2011-12 income year the cap is $25,000. However, for people 50 years of age or over the concessional contributions cap is $50,000 until 30 June 2012. Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a person.

Conclusion

You satisfy the requirements to claim a deduction under section 290-150 of the ITAA 1997 for the personal superannuation contribution of $50,000 in the 2011-12 income year. As the amount of the deduction you intend to claim is not over the concessional contributions cap you are eligible to claim a deduction for your contributions in the 2011-12 income year.