Edited version of your written advice

Authorisation Number: 1012739147730

Ruling

Subject: Deductibility of personal superannuation contributions

Question

Can the taxpayer claim a deduction in respect of personal superannuation contributions made to a complying superannuation fund in the 2013-14 income year if the superannuation provider has commenced a superannuation income stream based in whole or in part on the personal contributions?

Answer

No

This ruling applies for the following period:

Income year ended 30 June 2014

The scheme commences on:

1 July 2013

Relevant facts and circumstances

The taxpayer has superannuation funds in a complying superannuation fund (the Fund).

During the 2013-14 income year, the taxpayer made several personal superannuation contributions into their personal super account (the Personal Account) with the Fund.

During the 2014-15 income year, the taxpayer transferred funds from the Personal Account to establish an allocated pension income stream (the Allocated Pension) with the Fund. A portion of the taxpayer's personal superannuation contributions for the 2013-14 income year was transferred.

The Allocated Pension provides the taxpayer with regular income payments. The taxpayer has elected to receive regular quarterly income payments.

After establishing the Allocated Pension, the taxpayer provided to the trustee of the Fund a notice of intent to claim a deduction for their personal superannuation contributions.

After receiving the notice, the Fund provided a letter which advised that because the taxpayer had begun a superannuation income stream, they would not be able to claim a deduction for the contributions covered by the notice.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 subsection 290-170(2)

Income Tax Assessment Act 1997 subparagraph 290-170(2)(c)(iii)

Reasons for decision

Summary

The taxpayer's notice of intent to deduct in relation to the 2013-14 income year is not valid because the Fund has commenced a superannuation income stream based in whole or in part on the personal contributions covered by the notice.

Therefore, the taxpayer is not entitled to claim a deduction for the personal superannuation contributions made to the Fund in the 2013-14 income year.

Detailed reasoning

Personal deductible superannuation 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 Income Tax Assessment Act 1997 (ITAA 1997). However, the conditions in sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997 must also be satisfied for the person to claim the deduction.

In this case, particular consideration is required in relation to section 290-170 of the ITAA 1997 regarding the notice of intent to deduct conditions.

Notice of intent to deduct conditions

According to section 290-170 of the ITAA 1997, the taxpayer is required to provide to the trustee of the Fund a valid notice, in the approved form, of their intention to claim a deduction in respect of the contributions. The notice must be given by the earlier of the date they lodge their income tax return or the end of the income year following the year in which the contribution was made. The taxpayer must also have been given an acknowledgment of receipt of the notice by the trustee of the Fund.

A notice of intent to deduct will not be valid if one or more of the following conditions in subsection 290-170(2) of the ITAA 1997 are satisfied:

(a) the notice is not in respect of the contribution;

(b) the notice includes all or part of an amount covered by a previous notice;

(c) when you gave the notice:

(i) you were not a member of the fund or the holder of the RSA; or

(ii) the trustee or RSA provider no longer holds the contribution; or

(iii) the trustee or RSA provider has begun to pay a superannuation income stream based in whole or part on the contribution;

(d) before you gave the notice:

(i) you had made a contributions splitting application... in relation to the contribution; and

(ii) the trustee or RSA provider had not rejected the application.

Superannuation income stream

Of particular note is subparagraph 290-170(2)(c)(iii) of the ITAA 1997, which provides that a notice is not valid if the trustee has begun to pay a superannuation income stream based in whole or in part on the contribution.

The operation of this subparagraph is discussed in Taxation Ruling TR 2010/1 (TR 2010/1) entitled 'Income Tax: superannuation contributions'. Relevantly, paragraphs 272 to 274 state that:

272. It is the Commissioner's view that any superannuation benefit paid from a superannuation interest may affect the validity of a notice of intention to deduct a contribution. In particular, the Commissioner takes the view that any superannuation income stream commenced from a superannuation interest is based 'in whole or in part on' a contribution made to that superannuation interest. This is so regardless of whether the value of the superannuation income stream is less than the value of the interest as reduced by the relevant year's contributions. Further, any superannuation lump sum paid from the interest reduces the contributions held by the superannuation provider.

273. This approach is taken because it is consistent with the integrity of the rules that determine how superannuation benefits are taxed. Subsection 307-125(1) states that the tax free and taxable components of a superannuation benefit are worked out by first determining the proportions of the value of the superannuation interest that the components represent and then applying those proportions to the benefit. Paragraph 307-125(3)(a) states that, in the case of a superannuation income stream, the value of the superannuation interest and the amount of each of its components is worked out when the income stream commences. Paragraph 307-125(3)(b) states that, in the case of a superannuation lump sum, the value of the superannuation interest and the amount of each of its components is worked out just before the benefit is paid.

274. Therefore, a deduction notice covering all of the contributions made in a particular year will be invalid if it is given by a member after any superannuation benefit has been paid to the member because the components of the benefit will have been worked out on the basis that the current year's contribution was not deductible.

The effect of the Commissioner's view outlined above is that the trustee of the fund will have begun to pay a superannuation income stream based in whole or in part on the contribution once a superannuation income stream has commenced.

Therefore, if a taxpayer provides a notice of intent to deduct after a superannuation income stream has commenced, that notice would not be a valid notice. This is because the value of the superannuation interest and each of its components would have already been worked out on the commencement day of the income stream on the basis that the current year's contributions were not deductible.

Relevantly, there is an example in TR 2010/1 which describes a situation where a notice of intent to deduct is given to a superannuation fund after a pension partially funded by the contribution was commenced. Paragraphs 100 to 102 of TR 2010/1 state:

100. Libby has a superannuation interest valued at $150,000. Libby makes a $50,000 personal contribution in March 2008 so that her interest is valued at $200,000.

101. If, before lodging a section 290-170 notice, she were to commence a pension using $180,000 of her $200,000 interest, her fund will have commenced to pay a superannuation income stream based in whole or part on the contribution. A notice Libby purports to give her fund to deduct the contribution will be invalid.

102. Further, the outcome will be same even if, after making her personal contribution, Libby were to commence a pension of only $140,000 leaving the value of her interest in excess of the amount she intended to deduct.

Notice requirements not satisfied

In the taxpayer's case, the Fund had commenced a superannuation income stream during the 2014-15 income year but the taxpayer did not provide a notice of intent to deduct until some time after. As such, when the notice was provided to the trustee of the fund, a superannuation income stream had already commenced that was based in whole or in part on the contributions covered by the notice.

In these circumstances, the notice of intent to deduct will not be valid and the taxpayer will have not satisfied the conditions prescribed under section 290-170 of the ITAA 1997. In view of this, the taxpayer will not be entitled to claim a deduction for the personal superannuation contributions covered by the notice in the 2013-14 income year.