Edited version of private advice

Authorisation Number: 1012682867996

Ruling

Subject: Deduction for personal super contributions

Question 1

Are you entitled to claim a deduction under section 290-155 of the Income Tax Assessment Act 1997 (ITAA) in respect of personal superannuation contributions to be made during the 2013-14 income year?

Answer

No.

This ruling applies for the following periods:

The year ended 30 June 2014.

The scheme commences on:

1 July 2013.

Relevant facts and circumstances

Prior to the relevant income year, you utilised leave entitlements with your employer up until a date in the relevant income year when you terminated your employment (resignation date).

You are a member a complying Australian Superannuation Fund (the Fund).

During the relevant income year you made personal superannuation contribution's into the Fund.

You have advised the fund of your intention to claim a taxation deduction.

The Fund is yet to provide you with written acknowledge of your notice of intent to claim a deduction. You have received verbal advice from the Fund that you are not eligible to claim a deduction.

During the relevant income year, you received your final entitlements from your employer which was broken down into the following components:

• Gratuity or golden handshake;

• Unused annual leave;

• Unused long service leave.

The remainder of your assessable income for the relevant income year comprised of gross interest and gross rental income.

The amount received from your employer was greater than 10% of your total assessable income.

You advised that you did not have any reportable fringe benefits for the relevant income year.

You advised that you did not have any reportable employer superannuation contributions for the relevant income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 995-1.

Income Tax Assessment Act 1997 Subsection 26-55(2).

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 (SGAA)

Reasons for decision

Summary

As your assessable income from employment will be greater than ten per cent of your total assessable income for the relevant income year, the condition under section 290-160 of the ITAA 1997 has not been satisfied.

Furthermore, your Fund is yet to acknowledge receipt of your notice of intent to claim a deduction which is a requirement under section 290-170 of the ITAA 1997. Therefore, you are not eligible to claim a deduction for any personal superannuation contributions made in the relevant income year.

Detailed reasoning

Personal deductible superannuation contributions

Under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997) a taxpayer can claim a deduction in respect of personal contributions made to a superannuation fund or retirement savings account (RSA) for the purpose of providing superannuation benefits for the taxpayer.

However, the conditions in sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997 must all be satisfied before a taxpayer can claim a deduction for the contributions made in that income year.

Maximum earnings as an employee condition:

Subsection 290-160(1) of the Income Tax Assessment Act 1997 (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).

For those persons who are engaged in any 'employment' activities in the relevant 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'.

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.

In Taxation Ruling TR 2010/1 titled 'Income tax: superannuation contributions', the Commissioner discusses the operation of the maximum earnings as an 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 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.

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 examples of where a person will be engaged in an "employment" activity without being physically engaged in the activity. At paragraph 60 of TR 2010/1 the Commissioner states:

60. Consequently, a person need not be physically engaged in the activity. For example:

• a common law employee or office holder will be engaged in the activity while they remain employed or hold the office;

• a member of the executive body of a body corporate (for example a director) who is entitled to payment for their services in that capacity will be engaged in the activity while they remain a member of the executive body;

• a member of a Parliament of the Commonwealth or a State or of a Legislative Assembly of a Territory will be engaged in the activity while they are a member of the Parliament or Assembly; and

• a person who is engaged under a contract wholly or principally for labour is engaged in the activity throughout the duration of the contract.

Therefore a person is engaged in an employment activity while they remain employed or hold the office and receive a payment in relation to that employment.

In this case, you ceased employment with your employer on a date during the relevant income year. Because you were employed, even if so whilst on leave, you are still considered to be engaged in work or other activities that result in you being treated as an employee for the purposes of the SGAA.

The 'maximum earnings test' requires that less than 10% of the total of the contributor's assessable income, reportable fringe benefits total and total reportable employer superannuation contributions for the income year is attributable to their employment related activities.

In this case, income paid by employer to you during the relevant income year is assessable income for the purposes of the maximum earnings test and for the purposes of what constitutes assessable income to be declared in the income tax return of the taxpayer.

Assessable income

The assessable income of an Australian resident includes all ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

The facts of this case indicate that the majority of your assessable income for the relevant income year comprised, of the gratuity or golden hand shake payment from your employer, a payment for unused annual leave from your employer and a payment for unused long service leave from your employer.

As such, your assessable income, reportable fringe benefits total and total reportable employer superannuation contributions for the income year attributable to your employment related activities, are greater than 10% of your total assessable income, reportable fringe benefits and reportable employer superannuation contributions.

As you fail to satisfy the maximum earnings test of subsection 290-160(2) of the ITAA 1997, you are not eligible to claim a deduction for personal superannuation contributions in the relevant income year.

Notice of intent to deduct conditions

Having failed the maximum earnings test, there is no need to examine whether the conditions of sections 290-165 and 290-170 of the ITAA 1997 would be satisfied as you must satisfy all the tests specified in section 290-150.

However, it is important to note that 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 their income tax return is lodged 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, they must also have been given an acknowledgement of the notice by the trustee of the superannuation fund.

You have provided the Fund with a notice of intent to claim a deduction for personal superannuation contributions. However, the Fund has not acknowledged receipt of your intention to claim a deduction.

Therefore, the notice of intent to deduct conditions under section 290-170 of the ITAA 1997 has not been satisfied.

Conclusion

As you have not satisfied the conditions in sections 290-160 and 290-170, you are not entitled to claim a deduction for superannuation contributions made in the relevant income year.