Edited version of your written advice

Authorisation Number: 1013030221789

Date of advice: 6 June 2016

Ruling

Subject: Deductibility of personal superannuation contributions

Question 1

Is your client entitled to claim a deduction for personal superannuation contributions made in the 20XX-YY income year under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 20YY.

The scheme commences on:

1 July 20XX.

Relevant facts and circumstances

The Taxpayer is under the age of 75 and currently working only occasionally due to a health condition. During the 20XX-YY income year, the Taxpayer worked for approximately 250 hours in total.

The Taxpayer's health condition is not attributable to her/his former full time employment or her/his current casual employment.

In addition to income from part-time employment, the Taxpayer is also in receipt of income protection insurance benefits.

The Taxpayer has been in receipt of the income protection insurance benefits (the benefits) since the 20XX-YY income year, as due to her/his health condition, she/he has not been able to work full time. She/He has held personal income protection with the Insurer since the late 1990's.

The benefits received are from income continuation policies held in the Taxpayer's name with the Insurer for which she/he pays the premiums.

In relation to the income protection policy, the Taxpayer received a lump sum payment in 20XX-YY, and subsequent payments each month thereafter.

The Taxpayer made personal superannuation contributions in the 20XX-YY income year to complying superannuation fund.

The Taxpayer's contribution to the Fund is to provide her/him with superannuation benefits or her/his dependants in the event of her/his death.

The Taxpayer has stated that for the 20XX-YY income year her/his total assessable income will be approximately:

• $X salary sacrifice super; and

• $Y from income protection policies

The Taxpayer provided a written notice to the trustee of the superannuation fund dated 30 June 20YY, stating their intention to claim a deduction in respect of their contributions.

The Taxpayer subsequently received an acknowledgement notice issued by the trustee of the superannuation fund dated 30 June 20YY, acknowledging their intention to claim a deduction.

Any deduction for personal superannuation contributions claimed by the Taxpayer will not add to or create a loss.

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 Subsection 290-160(2).

Income Tax Assessment Act 1997 Subsection 290 165

Income Tax Assessment Act 1997 Subsection 290 165(2).

Income Tax Assessment Act 1997 Section 290 170

Income Tax Assessment Act 1997 Subsection 26-55(2).

Superannuation Guarantee (Administration) Act 1992

Reasons for decision

Summary

On the basis of the information provided your client is entitled to claim a deduction in their tax return for the 20XX-YY income year for personal contributions made in that year to a complying superannuation fund.

Detailed reasoning

Deduction for personal superannuation contribution

From 1 July 2007 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.

Complying superannuation fund condition

The condition in section 290-155 of the ITAA 1997 requires that where the contribution is made to a superannuation fund, it must be made to a complying superannuation fund for the income year of the fund in which the contribution is made.

In this case, your client satisfies this condition as she/he made contributions to the Fund, a complying superannuation fund in the 20XX-YY income year.

Maximum earnings as employee condition

Subsection 290-160(1) of the ITAA 1997 states:

This section 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).

Subsection 290-160(2) of the ITAA 1997 states:

To deduct the contribution, less than 10% of the total of the following must be attributable to the activities:

(a) your assessable income for the year;

(b) your reportable fringe benefits total for the income year;

(c) the total of your reportable employer superannuation contributions for the income year.

Where the person engages in any 'employment' activities in the income year a deduction can only be claimed where the assessable income, reportable fringe benefits total, and (from 1 July 2009) reportable employer superannuation contributions attributable to the 'employment' activities are less than 10% of the person's total assessable income, reportable fringe benefits total, and reportable employer superannuation contributions in the income year that the contribution is made. Further, if the person has more than one period of engaging in 'employment' activities in an income year, the assessable income, reportable fringe benefits total, and reportable employer superannuation contributions attributable to each period of 'employment' is aggregated.

The Commissioner has issued Taxation Ruling TR 2010/1 (TR 2010/1) which deals with, among other matters, deductions for personal superannuation contributions. At 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.

In this case, the facts show that your client was an employee during the 20XX-YY income year, as she/he performed approximately 250 hours of part-time work. Therefore, she/he is required to meet the maximum earnings as an employee condition, that is, income attributable to her/his 'employment activities' must be less than 10% of her/his total assessable income, reportable fringe benefits and reportable employer superannuation contributions for the 20XX-YY income year.

You have stated that your client's gross assessable income for the 20XX-YY income year is estimated to be $Z which comprises:

• $X salary sacrifice super; and

• $Y from income protection policies.

As more than 10% of your client's assessable income in the 20XX-YY income year was received from income protection policies, it must be determined whether the amounts received from those policies (the income protection payments) is 'attributable to' employment activities.

The term 'attributable to' is not defined in subsection 290-160(2) of the ITAA 1997. However, the courts have considered the meaning of the term in a number of different cases. For example, in determining whether the plaintiff's loss of employment was 'attributable to' the provisions of the Local Government Act 1972 (UK), Justice Donaldson in Walsh v. Rother District Council [1978] ICR 1216 at 1220; [1978] 1 All ER 5101 at 5104 stated:

These are plain English words involving some causal connection between the loss of employment and that to which the loss is said to be attributable. However, this connection need not be that of a sole, dominant, direct or proximate cause and effect. A contributory causal connection is quite sufficient.

In Repatriation Commission v. Law (1980) 31 ALR 140; (1980) 47 FLR 57; [1980] FCA 92, the Full Federal Court said:

It seems clear the expression 'attributable to' in each case involves an element of causation. The cause need not be the sole or dominant cause: it is sufficient to show 'attributability' if the cause is one of a number of causes provided it is a contributing cause ...

In McIntosh v. Federal Commissioner of Taxation (1979) 79 ATC 4325; (1980) 10 ATR 13; (1979) 45 FLR 279; (1979) 25 ALR 557 the Full Federal Court considered whether there was a causal connection between a commutation payment and the employee's termination of employment. Justice Brennan said that:

Though the language of causation often contains the seeds of confusion, I apprehend his Honour to hold the required nexus to be (at least) that the payment would not have been made but for the retirement.

In the context of income being attributable to employment activities the above shows that there needs to be a causal link.

In the case of 'attributability' in workers' compensation and policies covering loss of employment, paragraph 259 in TR 2010/1 states:

…'employment' activities of the recipient are not the direct or proximate cause of workers' compensation payments and like payments such as the proceeds of an insurance policy covering loss of employment income. Rather, the direct or proximate cause of the payments is the injury suffered during the course of their employment activities. However, the injury would never have arisen but for those activities. Therefore, there is a contributory cause or connection between the 'employment' activities and the payments to show 'attributability' within the meaning of subsection 290-160(2). (emphasis added)

In your case the income protection payments received by your client are the result of a medical condition which did not arise from their past or present employment activities. Accordingly, it cannot be held that the condition would never have arisen but for those activities or that there is a contributory cause between employment activities and the Taxpayer receiving the income protection payments.

Further, the income protection policy was held in the Taxpayer's name and not in the name of their employer.

In view of the above and the facts provided, it is considered that your client will satisfy the requirements that are prescribed under section 290-160 of the ITAA 1997.

Age related conditions

Section 290-165 of the ITAA 1997 requires a taxpayer to have made the contribution before the day that is 28 days after the end of the month in which they turn 75 years of age.

This condition is satisfied as your client will be under the age of 75 for the entire 20XX-YY income year.

Notice of intent to deduct conditions

Section 290-170 of the ITAA 1997 requires a taxpayer to provide a valid notice of their intention to claim the deduction to the trustee of their superannuation fund (the trustee) or the provider of the RSA (the provider). The notice must be given by the earlier of the date the taxpayer lodges 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 acknowledgement of the notice by trustee or the provider.

A notice 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) if, at the time when the notice is given:

the taxpayer was not a member of the fund or the holder of the RSA; or

the trustee or RSA provider no longer holds the contribution (for example, where a partial roll-over of the superannuation benefit which includes the contribution covered in the notice has been made); or

the trustee or RSA provider has begun to pay a superannuation income stream based on the contribution;

(d) before the notice is given:

a contributions splitting application is made in relation to the contribution; and

the trustee or RSA provider has not rejected the application.

In this case, your client provided a written notice to the superannuation fund in June 20YY, and received a valid acknowledgment on the same day.

Therefore, this requirement is satisfied.

Deduction limited by amount specified in notice

Subsection 290-175 of the ITAA 1997 states that the deduction cannot be more than the amount covered by the notice given under section 290-170 of the ITAA 1997.

Provided the amount of the deduction your client has claimed does not exceed the amount specified in his section 290-170 notice, your client will also satisfy this requirement.

Deduction limits

Allowable deductions are limited under subsection 26-55(2) of the ITAA 1997 to the amount of assessable income remaining after subtracting all other deductions from a taxpayer's assessable income. Furthermore, allowable deductions cannot create or increase a loss to be carried forward.

You have advised that the deduction for the proposed contribution will not add to or create a loss for your client. Accordingly your client will satisfy this condition.

Conclusion:

Based on the assumptions and facts previously noted, your client satisfies the requirements to claim a deduction under section 290-150 of the ITAA 1997 for personal contributions made in the 20XX-YY income year.