Edited version of your written advice

Authorisation Number: 1012931039006

Date of advice: 22 December 2015

Ruling

Subject: Deductibility of personal superannuation contributions

Question

Will a taxpayer's superannuation pension be treated as employment earnings under section 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

This ruling applies for the following period:

Income year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

During the relevant, income year the taxpayer will receive income from the following sources:

n A work-related retirement pension;

n Income from dividends;

n Bank interest

The taxpayer retired in the previous income year and will not be employed during the relevant income year.

The taxpayer intends to make a personal superannuation contribution to a superannuation fund in the relevant income year.

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 Subsection 290-160(1)

Income Tax Assessment Act 1997 Section 290-165

Income Tax Assessment Act 1997 Section 290-170

Superannuation Guarantee (Administration) Act 1992

Reasons for decision

Summary

The taxpayer's superannuation pension will not be included in the maximum earnings test under section 290-160 of the ITAA 1997 in the relevant income year as it does not relate to employment activities during that 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 ITAA 1997. However, the conditions in sections 290-155, 290-160 (if applicable), 290-165 and 290-170 of the ITAA 1997 must also be satisfied for the person to claim the deduction.

The condition under section 290-160 of the ITAA 1997 is known as the maximum earnings test and is only applicable in certain situations.

Maximum earnings test

According to subsection 290-160(1) of the ITAA 1997, the maximum earnings test only 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).

The application of the maximum earnings test is discussed in Taxation Ruling TR 2010/1 Income tax: superannuation contributions. Relevantly, paragraphs 58 and 59 state that:

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.

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'

The facts provided in this case indicate that the taxpayer terminated their employment relationship during the previous income year. As such, the taxpayer has not engaged in any activities in the relevant income year so far that would make them an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992.

Accordingly, the taxpayer's superannuation pension will not be counted towards the maximum earnings test under section 290-160 of the ITAA 1997.

Other conditions

As the taxpayer's superannuation pension is not employment related earnings, the taxpayer will be able to claim a deduction for their proposed personal superannuation contribution in the relevant income year provided the conditions under sections 290-155, 290-165 and 290-170 of the ITAA 1997 are satisfied.

In other words, the taxpayer will be able to claim a deduction if:

• The contribution is made to a complying superannuation fund;

• The contribution is made before a certain date (28 days after the end of the month in which the taxpayer turns 75); and

• The taxpayer lodges a valid notice of intent to deduct with the superannuation fund before the relevant due date and receives acknowledgement of their notice from the superannuation fund.