Edited version of your written advice

Authorisation Number: 1012899119016

Date of advice: 22 October 2015

Ruling

Subject: Deductibility of personal superannuation contributions

Question

Can you claim a deduction for personal superannuation contributions you made to a superannuation fund under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

This ruling applies for the following period:

Income year ended 30 June 2015

The scheme commences on:

1 July 2014.

Relevant facts and circumstances

You are employed by a health services provider (the Employer).

You are a member of a number of complying superannuation funds.

During the relevant income year, you became ill and commenced sick leave with the Employer. Due to your illness, you remained on unpaid sick leave for most of the relevant income year.

You own an income protection policy and receive monthly income protection payments.

In the relevant income year, your assessable income comprised the following payments:

• Income protection payments.

• Salary (including sick leave; annual and long service leave)

In the relevant income year, the following contributions were made by/on behalf of you:

• Superannuation Guarantee contributions

• Personal contributions

• Salary sacrifice contributions

• Transfer from a foreign fund

You wish to claim a deduction for superannuation contributions you made in the relevant income year.

You are currently performing unpaid work for the Employer in a reduced capacity until such time as you are able to return to work in your usual capacity.

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 995-1(1)

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

Taxation Administration Act 1953 Section 16-182 of Schedule 1

Reasons for decision

Summary

You cannot claim a deduction for personal superannuation contributions you made to a complying superannuation fund in the relevant income year because the sum of your assessable income and reportable employer superannuation contributions for the relevant income year that is attributable to your employment activities is greater than 10% of the total of your assessable income and reportable employer superannuation contributions for the relevant 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 of the ITAA 1997.

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).

In Taxation Ruling TR 2010/1 Income tax: superannuation contributions (TR 2010/1), the Commissioner discusses the operation of the maximum earnings as employee condition. Relevantly, in paragraphs 59 and 60, the Commissioner states:

59. A person will be engaged in an 'employment' activity if they are engaged in an activity in the income year that results in them being treated as an employee for the purposes of the SGAA.²¹ The term 'engaged' is not defined and takes its ordinary meaning. One of several meanings given to engaged is 'busy or occupied; involved'. Another meaning is 'under an engagement' where the ordinary meaning of 'engagement' is given as 'under an obligation or agreement'.²²

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; …

In your case, although unable to undertake work in your usual capacity, you remained employed by the employer during the relevant income year. As such, you are considered to be engaged in an employment activity for the purposes of subsection 290-160(2) of the ITAA 1997.

In accordance with subsection 290-160(2) of the ITAA 1997, for those persons who are engaged in any 'employment' activities, 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.

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.

By virtue of subsection 995-1(1) of the ITAA 1997, the term 'reportable employer superannuation contributions' is defined in section  16-182 of Schedule 1 to the Taxation Administration Act 1953 and includes salary sacrifice contributions made for the person's benefit in that income year.

In accordance with paragraph 64 of TR 2010/1, 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. As far as relevant, these include:

• the salary or wages (as used in its ordinary meaning) from the activity;

• …

• 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.

In this case, income protection payments, like workers' compensation payments, are made to compensate you for the loss of employment income due to illness. As such, these payments are attributable to your employment activities in the relevant income year.

As 100% of the total of the salary and wages, salary sacrifice contributions and income protection payments is attributable to your employment activities in the relevant income year, you cannot deduct personal superannuation contributions you made in the relevant income year.