Edited version of your private ruling

Authorisation Number: 1012579602983

Ruling

Subject: Deduction for personal superannuation contributions

Questions

1. Are income replacement payments attributable to employment activities for the purposes of section 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997)?

2. Are you entitled to claim a deduction in respect of your personal superannuation contributions for the 2013-14 income year?

Answer

1. Yes.

2. No.

This ruling applies for the following period:

Year ending 30 June 2014

The scheme commences on:

1 July 2013.

Relevant facts and circumstances

You are receiving an income stream from an income replacement policy (the Policy) due to an insurable event.

Proceeds of this policy (the Policy) will be reported as assessable income in your 2013-14 income tax return.

For the 2012-13 income year, the total payments you received from the Policy were $X.

The 2013 Review Schedule for the Policy for the 2013-14 income year states the benefit payment is $Y monthly which indicates the total payments for the 2013-14 income year will be $Z.

Your current assessable income is made up of interest, dividends, rental revenue and proceeds from the Policy and you state there is no income from employment.

The income that the Policy is replacing was your main source of income for which in the past concessional superannuation contributions were being salary sacrificed not exceeding your deductible limit. That is, the Policy premiums were paid by the employer through a salary sacrifice arrangement.

You propose to contribute an amount to a complying superannuation fund (the Fund) for the 2013-14 income year.

You confirm that you will lodge a notice to claim a deduction under section 290-170 of the Income Tax Assessment Act 1997 (ITAA 1997) to the trustee of the Fund and the Fund will acknowledge receipt of the notice.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 290-150

Income Tax Assessment Act 1997 Subsection 290-150(1)

Income Tax Assessment Act 1997 Subsection 290-150(2)

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)

Reasons for decision

Summary

The total payments you receive from your income replacement policy (the Policy) for the period from 1 July 2013 to 30 June 2014 are attributable to employment activities for the 2013-14 income year.

You will not be eligible to claim a deduction for the personal contributions made to the Fund if your income attributable to employment does not meet the maximum earnings as employee condition in accordance with section 290-160 of the ITAA 1997.

Detailed reasoning

In accordance with section 290-150 of the ITAA 1997, a person who makes contributions to a superannuation fund for the purpose of providing superannuation benefits for themselves, can claim the deduction for contributions in the income year the contributions are made.

However, to deduct the contributions, the person must satisfy a number of conditions¹, including the maximum earnings as employee condition (where applicable) set in section 290-160 of the ITAA 1997.

Subsection 290-160(1) of the ITAA 1997 states that section 290-160 of the ITAA 1997 applies if in the income year in which a person makes the contribution, the person engages in any of the following activities:

· holding an office or appointment;

· performing functions or duties;

· engaging in work;

· doing acts or things; and

the activities result in the person 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).

In accordance with subsection 290-160(2) of the ITAA 1997, where the above is the case, to deduct the contribution, less than 10% of the total of the following must be attributable to a person's 'employment' activities:

· the person's assessable income for the income year;

· the person's reportable fringe benefits total for the income year;

· the total of the person's reportable employer superannuation contributions for the income year.

The Commissioner has issued Taxation Ruling TR 2010/1 in which he expresses his view on the application of subsection 290-160(2) of the ITAA 1997 and, at paragraph 63, states:

Assessable income, reportable fringe benefits total and reportable employer superannuation contributions are to be given their statutory meaning. In this regard, a person's assessable income is usually a gross amount worked out ignoring expenses incurred in gaining the income. However, in some cases, such as partnership or trust income, the amount included in a person's assessable income is their share of the net partnership income or net trust income.

Paragraph 64 of TR 2010/1 states that all amounts that are 'attributable' to the 'employment' activity are taken into account as assessable income for the purposes of subsection 290-160(2) of the ITAA 1997. These include:

…

workers' compensation and like payments made because of injury or illness received by a person while holding the employment, office or appointment the performance of which gave rise to the entitlement to the compensation payments.

Like workers' compensation payments, income protection payments are made to compensate you for the loss of employment income due to injury or illness. Therefore, income protection payments received are attributable to the employment activities.

Accordingly, the payments from your income replacement policy (the Policy) are considered to be attributable to 'employment' activities in the 2013-14 income year. As such, you are required to meet the maximum earnings as employee condition (where applicable) set in section 290-160 of the ITAA 1997 in order to claim a deduction for personal superannuation contributions made in the 2013-14 income year.

As explained previously, to deduct the proposed contribution, less than 10% of the total of the following must be attributable to a person's 'employment' activities:

· the person's assessable income for the income year;

· the person's reportable fringe benefits total for the income year;

· the total of the person's reportable employer superannuation contributions for the income year.

Therefore you will not be eligible to claim a deduction for personal contributions made to the Fund in the 2013-14 income year unless you meet all of the conditions for deductibility including the maximum earnings as employee condition set in section 290-160 of the ITAA 1997

¹ Subsection 290-150(2) of the ITAA 1997.