Edited version of private advice

Authorisation Number: 1012622086317

Ruling

Subject: Deductibility of personal superannuation contribution

Questions

1. What is the maximum amount of non-concessional contributions you can make to a superannuation fund in the 2013-14 income year without exceeding your non-concessional contributions cap amount for the year?

2. Is there a limit to the amount of personal contribution you can deduct under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answers

1. $450,000

2. Yes

This ruling applies for the following period

Income year ending 30 June 2014

The scheme commences on

During the income year ending 30 June 2014

Relevant facts and circumstances

You and your spouse are joint owners of two investment properties.

At the moment, one of the properties is generating rental income, the other property is vacant.

You and your spouse are in the process of selling the vacant property.

You advised that you will make a capital gain in relation to the sale of the vacant property and that you will need to include a part of your capital gain in your assessable income for the relevant year.

During the 2013-14 income year, your assessable income will comprises of the capital gain and the rental income from the rental property.

You intend to contribute part of the proceeds from the sale of the vacant property into your complying superannuation fund in the 2013-14 income year.

You intend to claim a deduction for proposed personal superannuation contributions in the 2013-14 income year.

You advised that you haven't made any contributions to a superannuation fund in the 2011-12 and 2012-13 income years.

You are more than 18 and less than 70 years.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 291-20

Income Tax Assessment Act 1997 Subsection 291-20(1)

Income Tax Assessment Act 1997 Subsection 291-20(2)

Income Tax Assessment Act 1997 Section 291-25

Income Tax Assessment Act 1997 Subsection 291-25(2)

Income Tax Assessment Act 1997 Subsection 291-25(3)

Income Tax Assessment Act 1997 Section 292-85

Income Tax Assessment Act 1997 Subsection 292-85(2)

Income Tax Assessment Act 1997 Subsection 292-85(3)

Income Tax Assessment Act 1997 Subsection 292-85(4)

Income Tax Assessment Act 1997 Section 292-410

Superannuation (Excess Non-concessional Contributions Tax) Act 2007 Section 292-80

Income Tax (Transitional Provisions) Act 1997 Section 291-20

Income Tax (Transitional Provisions) Act 1997 Subsection 291-20(1).

Income Tax Assessment Act 1997 Section 290-150

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

Income Tax Assessment Act 1997 Subsection 290-160

Income Tax Assessment Act 1997 Subsection 290-165

Income Tax Assessment Act 1997 Subsection 290-170

Income Tax Assessment Act 1997 Subsection 290-175

Income Tax Assessment Act 1997 Subsection 296-285

Income Tax Assessment Act 1997 Subsection 26-55

Further issues for you to consider

None

Reasons for decision

Summary

The non-concessional contributions cap amount for the 2013-14 financial year is $150,000. However, as you will be under 65 years on 1 July 2013 (the beginning of the 2013-14 financial year) if, at any time in that year, you make non-concessional contributions in excess of $150,000, bring- forward provisions will be trigged and your non-concessional contributions cap amount for that year will be $450,000.

Deduction for personal contribution is limited to the amount specified in the notice of intent to deduct. Also, the allowable deduction is limited under subsection 26-55(2) of the ITAA 1997 to the amount of your assessable income remaining after subtracting all other deductions (excluding previous year's tax losses and any deductions for farm management losses) from your assessable income. Thus a deduction for personal superannuation contributions cannot add to, or create, a loss.

Further, any non-concessional (personal) contributions which you deduct from your assessable income in the 2013-14 financial year will be counted towards your concessional contributions cap for the year. If you exceed your concessional contributions cap for the year, you may have to pay excess contribution tax.

Detailed reasoning

Non-concessional contributions cap amount

In accordance with section 292-80 of the ITAA 1997, if a person has excess non-concessional contributions for a financial year, the person is liable to pay excess non-concessional contributions tax at the rate of 46.5% (section 5 of the Superannuation (Excess Non-concessional Contributions Tax) Act 2007).

A person has excess non-concessional contributions for a financial year if the amount of the person's non-concessional contributions for the year exceeds the person's non-concessional contributions cap for the year (section 292-85 of the ITAA 1997).

As far as relevant, subsection 292-85(2) of the ITAA 1997 states that for the 2009-10 or a later financial year, a person's non-concessional contributions cap for the year is an amount equal to six times the person's concessional contributions cap for the year.

Concessional contributions cap is defined in subsection 291-20(2) of the ITAA 1997. For the 2013-14 financial year, the cap is set at $25,000. For 2014-15 or a later financial year, in accordance with section 960-285 of the ITAA 1997, the cap amount is indexed annually in line with average weekly ordinary time earnings, in increments of $5,000 (rounded down).

Financial year is defined in subsection 995-1(1) of the ITAA 1997 as a period of 12 months beginning on 1 July.

Based on the above, the concessional contributions cap for the financial year beginning 1 July 2013 is $25,000. Consequently, the non-concessional contributions cap for the year is $150,000.

However, in accordance with subsections 292-85(3) and (4) of the ITAA 1997, if a person's non-concessional contributions for the first year exceed the annual non-concessional contributions cap amount for the year; and the person is under 65 years at any time in the first year, the non-concessional contributions cap for the first year is increased to three times the annual non-concessional contributions cap amount. That is, the person can 'bring forward' two years' worth of non-concessional contributions.

The bring-forward is triggered automatically when contributions in excess of the annual non-concessional contributions cap amount are made in a financial year. However, according to subsection 292-85(3) of the ITAA 1997, this is on the condition that a bring-forward has not been trigged in the preceding two financial years.

The 'bring forward' provisions can be activated every three years. However, where a bring forward has been triggered, the two future years' entitlements are not indexed.

In your case, on 1 July 2013, you were under 65 years of age and you have not triggered the bring-forward provisions since 1 July 2011. Therefore the bring-forward provisions will be available to you during the 2013-14 financial year.

In order to trigger the bring-forward provisions in the 2013-14 financial year you need to contribute a non-concessional contribution of at least $150,001 to your superannuation fund prior to 30 June 2014.

Alternatively, you can make non-concessional contributions of $450,000 in the 2013-14 financial year without exceeding your non-concessional contributions cap for the year. In that case, you will be not be able to make further non-concessional contributions for the 2014-15 and 2015-16 financial years without exceeding your non-concessional contributions cap.

Deducting personal contributions

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, 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).

The condition in section 290-155 of the ITAA 1997 requires that where the contribution is made to a superannuation fund, the fund must be a complying superannuation fund for the income year of the fund in which you made the contribution.

In this instance, you propose to make a personal contribution to a complying superannuation fund during the 2013-14 income year. Therefore, if you do so, you 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:

• 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).

Subsection 290-160(2) of the ITAA 1997 prescribes that a deduction for personal contributions can only be claimed where less than 10% the total of the following is attributable to 'employment' activities:

• assessable income for the income year;

• reportable fringe benefits total for the income year; and

• reportable employer superannuation contributions for the income year.

The term 'reportable employer superannuation contributions' includes salary sacrifice contributions made for the person's benefit in that income year.

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.

In your particular case, you advised that your assessable income for the 2013-14 income will only comprise of capital gains and rental income. As there will be no employment income, the maximum earnings as an employee condition does not apply to you in the 2013-14 income year.

Age-related conditions

For those who, like you, are more than 18 years, 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 will be under 75 years at the time you intend to make the contribution to the superannuation fund, you will satisfy the age-related conditions.

Notice of intent to deduct conditions

Section 290-170 of the ITAA 1997 provides that you must give to the trustee of the complying superannuation fund (the fund trustee) a valid notice, in the approved form, of your intention to claim a deduction in respect of the contribution, and you 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 you must give this notice to the fund trustee by the earlier of the date you lodge your income tax return for the income year or the end of the income year following the year in which the contribution was made.

In accordance with subsection 290-170(2) of the ITAA 1997, a notice will be valid if 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:

• you are a member of the fund;

• 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);

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

• before the notice is given:

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

• the fund trustee has not rejected the application.

You advised that you will provide a valid notice of your intention to claim a deduction to the fund trustee in respect of the proposed contribution. You have also advised that you will receive a written notice from the trustee acknowledging receipt of your notice of intent for the contribution. You assert that you will meet the requirements of section 290-170 of ITAA 1997 once you have taken these actions.

Provided you lodge a valid notice of intent with the fund trustee before you lodge your income tax return for the 2013-14 income year or by 30 June 2015, whichever is the earlier, and the trustee duly acknowledges your notice, the notice of intent to deduct conditions under section 290-170 of the ITAA 1997 will be satisfied.

Deduction limits

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 you intend to claim does not exceed the amount specified in your section 290-170 notice, you 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.

Also, please note that any non-concessional (personal) contributions which are deducted from a person's assessable income in a financial year under section 290-150 of the ITAA 1997 are counted as concessional contributions for the purposes of concessional contributions cap for the year. If a person exceeds their concessional contributions cap for a financial year, they may have to pay excess contribution tax.

Concessional contributions cap

As stated above, for the 2013-14 financial year the annual concessional contributions cap is $25,000. .However, there are transitional rules for older Australians as outlined in section 291-20 of the Income Tax (Transitional Provisions) Act 1997 (ITTPA 1997). Subsection 291-20(1) of ITTPA 1997 states:

Despite section 291-20 of the Income Tax Assessment Act 1997, your concessional contributions cap is $35,000:

(a) for the 2013-14 financial year - if you are 59 years or over on 30 June 2013; or

(b) for the 2014-15 financial year or a later financial year - if you are 49 years or over on the last day of the previous financial year.

Note:

This amount is not indexed

On 30 June 2013, you were under 65 years old. Therefore, concessional contribution cap of $35,000 applies to you in the 2013-14 financial year.

Excess concessional contributions for a financial year are defined in subsection 291-20(1) of the ITAA 1997 as an amount of a person's concessional contributions for a financial year that exceed the person's concessional contributions cap for the year

A person is taxed on the excess concessional contributions at the rate of 31.5%. In addition, the amount of any excess concessional contributions for a financial year is counted towards the person's non-concessional contributions cap for the year.