Edited version of your written advice

Authorisation Number: 1012840433698

Date of advice: 14 July 2015

Ruling

Subject: Deductibility of personal superannuation contributions

Question 1

Is the bonus payment from the Taxpayer's former employer attributable to the Taxpayer's employment activities for the purposes of section 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following periods:

Income year ended 30 June 2015.

The scheme commences on:

1 July 2014.

Relevant facts and circumstances

The Taxpayer was employed by a certain company. As a result of being made redundant, the Taxpayer ceased work on a date in the 2013-14 income year.

The Taxpayer did not take up any other employment following the redundancy. He/she is not currently working in any capacity.

Following being made redundant, the Taxpayer was paid an amount by his/her former employer on a date in the 2014-15 income year, as a bonus for work performed in the 2013-14 financial year.

In addition to this bonus payment, the Taxpayer has received dividends and rent during the 2014-15 income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 290-150.

Income Tax Assessment Act 1997 Section 290-160.

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

Income Tax Assessment Act 1997 Paragraph 290-160(1)(a)

Income Tax Assessment Act 1997 Subsection 290-160(2).

Superannuation Guarantee (Administration) Act 1992 Subsection 6(1).

Reasons for decision

Summary

The bonus payment made in the 2014-15 income year to the Taxpayer is not attributable to their employment activities for the 2014-15 income year.

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 conditions, including the maximum earnings as employee condition set in section 290-160.

Subsection 290-160(1) of the ITAA 1997 applies 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 (paragraph 290-160(1)(a) of the ITAA 1997):

• 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).

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

In TR 2010/1, the Commissioner discusses the operation of the maximum earnings as employee condition. In 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.

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 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;

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, due to being made redundant, the Taxpayer ceased employment with the company as of the 2013-14 income year. The taxpayer did not engage in employment activities after that time.

Despite receiving a bonus payment in the 2014-15 income year, the Taxpayer was not employed at any point during the 2014-15 income year. Therefore, they are not considered to be engaged in work or other activities that result in them being treated as an employee for the purposes of the SGAA.

Based on the above, the bonus payment received by the Taxpayer in the 2014-15 income years will not be attributable to employment activities in the 2014-15 income year.