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Ruling

Subject: Deduction for personal superannuation contributions

Question

Can your client claim a deduction for their personal superannuation contributions while receiving payments under an income protection insurance policy?

Answer

Yes.

This ruling applies for the following periods:

2012-13 income year.

The scheme commences on:

1 July 2012

Relevant facts and circumstances

During the 2011-12 income year, your client worked through a partnership as a sole trader.

The partnership ceased trading during the 2011-12 income year.

In the 2011-12 income year, your client ceased working due to a physical disability.

Your client started receiving payments through an income protection insurance policy due to a physical disability and the loss of their ability to work.

Your client is currently still receiving income protection insurance payments under that insurance policy.

Your client will not be working during the 2012-13 income year.

Your client intends to make a personal contribution towards their superannuation with a complying superannuation fund during the 2012-13 income year.

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 Subsection 290-160(1).

Income Tax Assessment Act 1997 Subsection 290-160(2).

Income Tax Assessment Act 1997 Section 290-165.

Income Tax Assessment Act 1997 Subsection 290-165(2).

Income Tax Assessment Act 1997 Section 290-170.

Reasons for decision

Summary

Your client is entitled to claim a deduction for a personal superannuation contribution that they intend to make in the 2012-13 income year, provided the deduction does not add to or create a tax loss in that income year.

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) titled 'Income Tax: superannuation contributions'.

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 you made the contribution.

In this case, your client will make personal superannuation contributions to a complying superannuation fund, in the 2012-13 income year. Therefore the complying superannuation fund condition is satisfied.

Maximum earnings as an employee condition

Section 290-160 of the ITAA 1997 states:

(1) 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 duties;

(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).

(2) 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 year;

(b) your reportable fringe benefits total for the income year.

Where a person is engaged in activities during the income year that would make them an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA) then they will need to satisfy the maximum earnings test in order to claim a deduction for their personal superannuation contributions. It should be noted that the level of superannuation support by an employer or another person is no longer a relevant factor under this condition.

The Commissioner has issued Taxation Ruling TR 2010/1 which deals with, among other matters, deductions for personal superannuation contributions. At paragraphs 57 and 58 of TR 2010/1 the Commissioner states:

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.

In this case, you have indicated that your client will not be engaged in any activities during the 2012-13 income year that would make your client an employee for the purposes of the SGAA. Therefore, your client is not required to meet the conditions of the maximum earnings test.

Hence, section 290-160 of the ITAA 1997 does not apply in the income year in which your client proposes to make a personal superannuation contribution.

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.

As your client will be under 65 years of age when the proposed contributions are to be made, your client will satisfy the age-related conditions.

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 addition, your client must also have been given an acknowledgement of the notice by the trustee of the superannuation fund.

In this case, your client intends to provide the trustee of the complying superannuation fund with a written notice stating your client's intention to claim a superannuation deduction for personal superannuation contributions made in the 2012-13 income year. Your client fully expects that the trustee will acknowledge receipt of your client's notice. Provided this occurs then the notice of intent to deduct conditions under section 290-170 of the ITAA 1997 will be satisfied.

Deduction limits

From 1 July 2007, the previous age based limits on deductions for personal superannuation contributions has 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 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.

Contribution limits

From 1 July 2007, concessional contributions made to superannuation funds will be subject to an annual cap. Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a person.

As noted earlier, the age based limits on deductions that existed prior to 1 July 2007 for these contributions will no longer apply.

Please note that for contributions made during the 2012-13 income year, the concessional contributions cap is $25,000.

Conclusion

As your client will satisfy the conditions in sections 290-155, 290-165 and 290-170 of the ITAA 1997 and was not required to satisfy section 290-160, your client will be entitled to claim a deduction for personal superannuation contributions made in the 2012-13 income year, provided the deduction does not add to or create a tax loss in that income year.