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Ruling

Subject: Deduction for personal superannuation contributions

Question

Is your client eligible to claim a deduction for personal superannuation contributions to be made to a constitutionally protected fund (CPF) in the 2012-13 income year under section 290-150 of the Income Tax Assessment Act 1997?

Advice/Answer:

Yes.

This ruling applies for the following period

Year ending 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts and circumstances

Your client operates a private business.

Your client is a member of a fund (the Fund). The Fund is a constitutionally protected fund (CPF). The Fund is also an exempt public sector superannuation scheme and a complying superannuation fund.

You understand that under the rules which govern the Fund, your client is able to make personal superannuation contributions to the Fund. In this light, your client intends to make personal contributions in excess of the concessional contributions cap to the Fund in the 2012-13 income year.

You have advised that your client will not hold an office or perform any work or other activities that would result in your client being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA) during the 2012-13 income year.

Your client will provide the trustee of the Fund with a valid notice in the approved form of your client's intention to claim a tax deduction for the personal contributions made in the 2012-13 income year, and the trustee will acknowledge this notice in respect of the personal contributions.

The notice will be given by the earlier of the date your client lodges their income tax return or the end of the income year following the year in which the contribution is made.

You have advised that a deduction for the proposed contribution will not add to or create a loss for your client in the 2012-13 income year.

Your client is under the age of 75 years.

Assumptions

You have been advised and agree with the following assumptions being made in issuing the Notice of Private Ruling for your client:

· personal contributions will be made to the Fund for your client in the 2012-13 income year; and

· your client will not be employed in employment activities in the 2012-13 income year that result in your client being treated as an employee for the purposes of the SGAA therefore will satisfy the maximum earnings condition in section 290-160 of the ITAA 1997; and

· the Fund will accept your client's personal contributions in the 2012-13 income year; and

· your client will provide a written notice to the trustee of the Fund in accordance with section 290-170 of the ITAA 1997 stating that your client intends to claim as a tax deduction in respect of the personal contributions made in the 2012-13 income year and that in providing this notice will satisfy all the requirements of section 290-170; and

· the trustee of the Fund will provide a written notice for the 2012-13 income year under section 290-170 of the ITAA 1997 acknowledging receipt of your client's notice.

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 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 Subsection 290-160(1).

Income Tax Assessment Act 1997 Paragraph 290-160(1)(a).

Income Tax Assessment Act 1997 Paragraph 290-160(1)(b).

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 290-175.

Income Tax Assessment Act 1997 Subparagraph 292-25(2)(c)(iii).

Income Tax Assessment Act 1997 Subsection 995-1(1).

Income Tax Assessment Regulations 1997 Regulation 995-1.04.

Summary

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

Detailed Reasoning

Personal superannuation contributions made in the 2012-13 income year

A person can claim a deduction for personal contributions made to a superannuation fund for the purpose of providing superannuation benefits for themselves under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997).

However, 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'.

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 instance, your client proposes to make personal contributions to the Fund. The Fund is an exempt public sector superannuation scheme, and is a complying superannuation fund. Therefore, your client will satisfy this condition.

Maximum earnings as an employee condition

Subsection 290-160(1) of the ITAA 1997 operates to apply the maximum earnings as an employee condition only if, in the income year in which the contribution is made, the person is engaged in any of the following activities (paragraph 290-160(1)(a)):

· holding an office or appointment (for example, a director of a company);

· performing functions or duties;

· engaging in work;

· doing acts or things; and

· the activities result in that person being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA).

For those persons who are engaged in any 'employment' activities in the 2012-13 income year, subsection 290-160(2) of the ITAA 1997 prescribes that a deduction for personal contributions can only be claimed where the sum of their:

· assessable income

· reportable fringe benefits total and

· reportable employer superannuation contributions

· attributable to the 'employment' activities is less than 10% of the total of that person's assessable income, reportable fringe benefits total and reportable employer superannuation contributions. The term 'reportable employer superannuation contributions' includes salary sacrifice contributions made for the person's benefit in that income year. This calculation is referred to as the 'maximum earnings test'.

In TR 2010/1, the Commissioner discusses the operation of the maximum earnings as employee condition. In paragraph 58 of TR 2010/1 the Commissioner states that those persons who have not engaged in an 'employment' activity in the income year in which they make a contribution are not subject to the maximum earnings test.

The maximum earnings as an employee condition does not apply to your client

The employment activity condition outlined in subsection 290-160(1) of the ITAA 1997 has two parts. To satisfy this condition, therefore, a taxpayer must both:

· engage in any of the employment activities specified in paragraph 290-160(1)(a) of the ITAA 1997, and

· as a result be treated as an employee for the purposes of the SGAA, as specified in paragraph 290-160(1)(b) of the ITAA 1997.

Your client operates a private business. You have advised that your client will not be employed in any capacity during the 2012-13 income year.

Based on the facts provided, the maximum earnings as an employee condition does not apply to your client in the 2012-13 income year, because your client will not be engaged in an employment activity during this income year. Consequently, section 290-160 of the ITAA 1997 does not apply to your client in this income year.

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 age 75 at the time your client intends to make the proposed contribution to the Fund during the 2012-13 income year, your client will satisfy the age-related conditions.

Notice of intent to deduct conditions

Section 290-170 of the ITAA 1997 provides that your client must give to the trustee of the complying superannuation fund (the fund trustee) a valid notice, in the approved form, of your client's intention to claim a deduction in respect of the contribution, and your client must also have been given an acknowledgment of receipt of the notice by the fund trustee.

Section 290-170 of the ITAA 1997 also provides that your client must give the notice to the fund trustee by the earlier of the date of your client's income tax return being lodged or the end of the income year following the year in which the contribution was made.

In addition, the fund trustee is required to acknowledge your client's notice without delay.

A notice will be valid as long as the following conditions are satisfied:

· the notice is in respect of the contribution;

· the notice is not for an amount covered by a previous notice;

· at the time when the notice is given:

o your client is a member of the fund;

o the fund trustee 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);

o the fund trustee has not begun to pay a superannuation income stream based on the contribution; or

· before the notice is given:

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

o the fund trustee has not rejected the application.

You have advised that a valid notice will be provided to the fund trustee of your client's intention to claim a deduction in respect of the proposed personal contributions. You have also advised that your client will receive a written notice from the trustee acknowledging receipt of your client's notice of intent for the contribution. You assert that your client will meet the requirements of section 290-170 of ITAA 1997 when your client has taken these actions.

Provided your client lodges a valid notice of intent with the fund trustee before your client's income tax return for the 2012-13 income year is lodged or by 30 June 2014, whichever is the earlier, and the trustee duly acknowledges your client's notice, the notice of intent to deduct conditions under section 290-170 of the ITAA 1997 will be satisfied.

Deduction limited by amount specified in notice

Section 290-175 of the ITAA 1997 states that the deduction cannot be more than the amount covered by the notice given under section 290-170 of the ITAA 1997.

Provided the amount of the deduction your client will claim does not exceed the amount specified in your client's section 290-170 notice, your client will also satisfy this requirement.

Deduction limits

As noted in your application, 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 losses) from a taxpayer's assessable income.

Therefore a deduction for personal superannuation contributions cannot add to or create a loss.

You have advised that the deduction for the proposed contribution will not add to or create a loss in the 2012-13 income year. Therefore it is accepted that this requirement will be satisfied.

Conclusion

As your client will satisfy all the required conditions in subdivision 290-C of the ITAA 1997, your client can claim a deduction in the 2012-13 income year for the entire personal contribution your client intends to make to the Fund in this income year.

Further issues for you to consider

It is noted that the Fund is a constitutionally protected fund (CPF). Therefore, subparagraph 292-25(2)(c)(iii) of the ITAA 1997 operates to exclude the proposed personal contributions from being concessional contributions in the 2012-13 financial year.

As a result, the contribution will not be counted towards your client's annual concessional contributions cap for this financial year. To the extent that the proposed contribution forms part of the contributions segment of your client's superannuation interest in the CPF (which includes personal undeducted contributions), it will be a non-concessional contribution, and it will be counted towards your client's non-concessional contributions cap for the financial year in which the contribution is made to the Fund.

Further, any personal deductible contributions made to a fund other than the CPF will be counted towards your client's concessional contributions cap.