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Ruling

Subject: Deduction for personal superannuation contributions

Question

Can your client claim a tax deduction for personal superannuation contributions made to a superannuation fund in the 2012-13 income year under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following period:

2012-13 income year

The scheme commences on:

1 July 2012

Relevant facts and circumstances

Your client was employed by an employer. Your client was diagnosed with an illness that prevented your client from continuing employment. Your client terminated employment during the 2010-11 income year.

Your client paid the premium on an income protection insurance policy. Your client commenced receiving payments under the income protection policy during the 2010-11 income year.

Your client intends to make a contribution to a superannuation fund (the Fund) and claim a maximum deduction without creating a loss.

The Fund is a complying superannuation fund.

Your client intends to make the contributions for the purpose of providing superannuation benefits for your client or for your client's dependants if your client dies before or after becoming entitled to the benefits.

Your client's estimated income for the 2012-13 income year comprises the disability insurance plus interest, and there will be no reportable fringe benefits.

There are no reportable superannuation contributions anticipated to be made for your client's benefit to a complying superannuation fund other than the amount your client intends to contribute.

Your client intends to provide a written notice to the Fund stating that your client intends to claim a deduction for this contribution. Your client also intends to receive a notice for the 2012-13 income year from the Fund, acknowledging receipt of your client's notice of intent in respect of this contribution.

Your client is under 65 years of age.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 26-55(2)

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 Section 290-165

Income Tax Assessment Act 1997 Section 290-170

Reasons for decision

Summary

Based on the information provided, your client can claim a deduction for personal superannuation contributions to be made in the 2012-13 income year, as all the conditions for claiming the deduction will be satisfied.

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, you have advised that your client proposes to make a contribution to a superannuation fund which is a complying superannuation fund. Therefore, this requirement will be 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 their assessable income and reportable fringe benefits must be attributable to those activities. Subsection 290-160(1) states:

This section applies if:

· in the income year in which you make the contribution, you engage in any of these activities:

· holding an office or appointment;

· performing functions or appointment;

· engaging in work;

· doing acts or things; and

· 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).

Your client commenced to receive payments from an income protection insurance policy from the 2010-11 income year. Your client subsequently terminated employment with the employer during the 2010-11 income year due to an illness that prevented your client from continuing their employment.

You advised that your client's estimated taxable income for the 2012-13 income year will comprise the disability insurance payments and interest.

There is no reportable fringe benefits amount or reportable superannuation contributions, other than the proposed personal contribution.

Based on the information you have provided in your application, your client was not an employee for superannuation guarantee and will not derive any income from an employer in the 2012-13 income year. Consequently, section 290-160 of the ITAA 1997 does not apply in this instance.

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:

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

· 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:

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

· 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);

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

· before the notice is given:

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

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

This condition is satisfied as your client will lodge a valid notice with the trustee of your client's superannuation fund and receive an acknowledgment of that notice.

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 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.

You confirm that the deduction for personal superannuation contributions your client intends to claim under section 290-150 of the ITAA 1997 will not add to or create a loss in the 2012-13 income year.

Contribution limits and the concessional contributions cap:

Concessional contributions made to superannuation funds in the 2012-13 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.

Conclusion:

As all of the conditions for deductibility under section 290-150 of the ITAA 1997 have been satisfied in relation to the 2012-13 income year, your client is entitled to claim a deduction for the personal superannuation contributions made to a complying superannuation fund in the 2012-13 income year.