Edited version of your private ruling

Authorisation Number: 1012519906155

Ruling

Subject: Personal superannuation contributions

Question 1

Will the maximum earnings as an employee condition under section 260-160 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to your circumstances in the 2012-13 income year?

Answer: No.

Question 2

Will the personal superannuation contributions be deductible under section 290-150 of the ITAA 1997 in the 2102-13 income year?

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2013

The scheme commences on

1 July 2012

Relevant facts and circumstances

During the 2011-12 income year you took up an offer of redundancy from your employer (the Employer).

A Statement of Service from the Employer shows:

(a) that your employment with the Employer ceased on a particular date in the 2011-12 income year;

(b) the reason for cessation; and

(c) details of the position and classification you held at cessation.

Details provided show your total assessable income in the 2012-13 income year comprises:

· your entitlements (severance, payments in lieu of long service leave, annual leave, etc) which relates to your employment which ceased on in the 2011-12 income year;

· your final pay from the Employer to a date in the 2011-12 income year;

· a pension;

· dividend and interest income; and

· investment income.

You state that during the 2012-13 income year you did not engage in any employment related activities.

During the 2012-13 income year you made personal superannuation contributions to a complying superannuation fund (the Fund).

You were less than 55 years of age at the time the contributions were made to the Fund.

You intend to make a claim for personal superannuation contributions.

You have provided the Fund with a notice of your intention to claim a deduction for your contributions (the notice).

You are awaiting an acknowledgement form the Fund in relation to the 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 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

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

Reasons for decision

Summary

You are entitled to claim a deduction for 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.

Detailed reasoning

Personal deductible 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 ITAA 1997. However, the conditions in sections 290-155, 290-160, 290-165 and 290-170 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 you made the contribution.

In this case, you made personal superannuation contributions during the 2012-13 income year to a complying superannuation fund (theFund). Therefore the complying superannuation fund condition is satisfied.

Maximum earnings as an employee condition

Subsection 290-160(1) of the ITAA 1997 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 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).

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 10% rule 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.

Subsection 290-160(2) of the ITAA 1997 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 year;

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

Where the person engages in any 'employment' activities in the income year a deduction can only be claimed where the assessable income, reportable fringe benefits total, and (from 1 July 2009) reportable employer superannuation contributions attributable to the 'employment' activities are together less than 10% of the person's total assessable income, reportable fringe benefits total, and reportable employer superannuation contributions in the income year that the contribution is made. Further, if the person has more than one period of engaging in 'employment' activities in an income year, the assessable income, reportable fringe benefits total, and reportable employer superannuation contributions attributable to each period of 'employment' is aggregated.

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.

(emphasis added)

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.

Furthermore, the Commissioner has given an example which refers to the 'maximum earnings test'. At paragraphs 88 and 89 of TR 2010/1 the Commissioner states:

88. Caitlin terminates her employment with Bling Pty Ltd on 30 June 2009 and was paid unused long service leave and annual leave on 3 July 2009. Caitlin made a contribution of $5,000 to her complying superannuation fund on 9 July 2009. Caitlin was not engaged in any employment activities for the 2009-10 income year.

89. As Caitlin was not engaged in any employment activities in the 2009-10 income year, she does not need to meet the earnings test in relation to her $5,000 contribution.

In your case, you ceased employment with the Employer in the 2011-12 income year. Since then you have not been engaged in activities that would make you an employee for the purposes of the SGAA. Therefore, you are not required to meet the condition of the 10% rule.

Hence, section 290-160 of the ITAA 1997 does not apply in the 2012-13 income year in which you will make personal superannuation contributions.

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 you were less than 75 years of age in the 2012-13 income year when you made the contributions, you satisfy the age-related conditions.

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 valid notice by the trustee of the superannuation fund.

You have provided the trustee of the Fund a written notice of your intention to claim a deduction for personal superannuation contributions you made to the Fund in the 2012-13 income year.

In relation to the Fund's trustee providing you with an acknowledgement notice, you are awaiting that notice.

In view of the above, and provided the Fund's trustee provides you an acknowledgment notice prior to you lodging your 2012-13 income tax return, the notice of intent to deduct conditions under section 290-170 of the ITAA 1997 are considered to be satisfied.

Deduction limits

From 1 July 2007, the previous age based limit 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 up to the concessional contributions cap.

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 the 2012-13 income year the concessional contributions cap is $25,000 for all individuals.

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 you satisfy all the conditions in sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997 you are entitled to claim a deduction of up to $25,000 for concessional 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.