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Ruling

Subject: Deductibility of personal superannuation contributions

Question

Can your client claim a deduction for superannuation contributions made to a complying superannuation fund during the 2011-12 income year under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes, provided the deduction does not add to or create a tax loss in that income year.

This ruling applies for the following periods:

2011-12 income year

The scheme commences on:

1 July 2011

Relevant facts and circumstances

Your client is currently working as a contractor in a particular Industry (the Industry).

Whilst performing services in the Industry, your client accrued long service in a portable long service leave authority for the Industry.

A Pay-As-You-Go (PAYG) payment summary for individual non-business shows that a payment was made to your client by the portable long service leave authority during the 2011-12 income year.

Your client does not have any reportable fringe benefits for the 2011-12 income year.

Your client does not have any reportable employer super contributions for the 2011-12 income year.

Your client intends to make a concessional contribution of less than $25,000 into a complying superannuation fund (the Fund) and intends to claim a tax deduction in respect of the concessional contribution made in the 2011-12 income year.

Your client intends to provide a written notice to the trustee of the Fund in accordance with section 290-170 of the Income Tax Assessment Act 1997 (ITAA 1997) stating their intention to claim a tax deduction in respect of the concessional contribution made in the 2011-12 income year.

Your client expects that the trustee of the Fund will acknowledge receipt of their notice under section 290-170 of the ITAA 1997.

The Fund is a complying self-managed superannuation fund.

Your client is under the age of 65 years.

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.

Income Tax Assessment Act 1997 Section 960-285.

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

Reasons for decision

Summary of decision

As your client will satisfy all the necessary conditions of the income tax legislation, they will be entitled to claim a deduction of up to $50,000 for concessional superannuation contributions made in the 2011-12 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 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 intends to make a personal superannuation contribution into the Fund which is a complying self-managed superannuation fund in the 2011-12 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.

Currently, your client is a contractor in the industry. Your client's total assessable income for the year includes interest income, dividend income, business income and rental income. As your client is a contractor in the Industry, the payment that your client received from the portable long service leave authority for the Industry for accrued long service leave is deemed to be part of their business income.

Your client has indicated that they have not engaged in any activities during the 2011-12 income year that would make them 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 2011-12 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 is under 65 years of age when the proposed contributions are to be made, your client will therefore 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, the person 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 Fund with a written notice stating their intention to claim a superannuation deduction for personal superannuation contributions made in the 2011-12 income year. Your client fully expects that the trustee will acknowledge receipt of their notice. Provided this occurs before the earlier of:

· the lodgement of your 2011-12 income tax return; or

· 1 July 2013;

then the notice of intent to deduct conditions under section 290-170 of the ITAA 1997 will be satisfied.

Deduction limits

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

For a person 50 years of age or more on 30 June 2012 the concessional contributions cap is $50,000.

Therefore, as your client was over 50 years of age in the 2011-12 income year, the concessional contributions cap of $50,000 will apply. Under section 960-285 of the ITAA 1997, the concessional contributions cap is indexed in line with average weekly ordinary time earnings (AWOTE), in increments of $5,000 (rounded down). The new indexed amount is generally available each February.

Conclusion

As your client will satisfy the conditions in sections 290-155, 290-165 and 290-170 of the ITAA 1997 and they are not required to satisfy the condition in section 290-160, your client will be entitled to claim a deduction of up to $50,000 for concessional superannuation contributions made in the 2011-12 income year provided the deduction does not add to or create a tax loss in that income year.