Edited version of your written advice

Authorisation Number: 1012930926040

Date of advice: 21 December 2015

Ruling

Subject: Deductibility of superannuation contributions

Question

Is the payment to the Taxpayer from a third party in the 2014-15 income year attributable to the Taxpayer's employment activities for the purposes of section 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

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 their employer (the Employer) until a date in the relevant income year.

The Taxpayer has been self- employed since the termination of employment with the Employer.

A lump sum payment was received by the Taxpayer from an industry long service leave scheme (the Scheme) in the relevant income year.

A PAYG summary was provided to the Taxpayer from the Scheme for the relevant income year.

The Scheme receives amounts for persons (Beneficiaries) who are employed in a particular industry. Payments to the Scheme can be from multiple employers and are available for release to a Beneficiary if and when certain conditions are met.

The Scheme payment made to the Taxpayer was because of the Taxpayer's employment with the Employer.

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)

Reasons for decision

Summary

The payment from the Scheme to the Taxpayer is attributable to the Taxpayer's employment activities 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.

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 Taxation Ruling TR 2010/1 (TR 2010/1) 'Income tax: superannuation contributions, the Commissioner discusses the operation of the maximum earnings for persons engaged in employment activity. In paragraphs 57 and 59 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.

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. 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'.

In this case, you have advised the taxpayer ceased employment with the employer on dd/mm/yyyy. For the relevant income year, the taxpayer is therefore considered, up to that date, to be engaged in work or other activities that resulted in the taxpayer being treated as an employee for the purposes of the SGAA.

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;

• allowances and other payments earned by an employee;

In this case a relevant fact was that the payment from the Scheme was made to the Taxpayer because of the Taxpayer's employment with the Employer. As such, this payment is attributable to the employment activity.

Based on the above, the payment received by the Taxpayer form the Scheme in the relevant income year is attributable to employment activities in the relevant income year.