Edited version of private advice

Authorisation Number: 1013130097005

Date of advice: 24 November 2016

Ruling

Subject: deductibility of personal superannuation contributions

Question

Are income protection payments attributable to your 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 period:

Income year ended 30 June 2016

The scheme commences on:

1 July 2015

Relevant facts and circumstances

During the 2015-16 income year, you made personal superannuation contributions to a complying superannuation fund (the Fund)

You have given the trustee of the Fund a notice of your intent to deduct contributions made in the 2015-16 income year.

You are employed by a company (the Employer).

During the 2015-16 income year, you were diagnosed with a serious illness as a result of which you could not attend work.

The Employer paid you sick leave until your sick leave ran out.

During the 2015-16 income year you received income protection payments from the Fund.

During the 2015-16 income year you returned to work with the Employer on a part-time basis. Your salary was supplemented by income protection payments from the Fund.

You have not received any other income during the 2015-16 income year.

You are under 75 years of age.

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 subsection 290-160(2).

Reasons for decision

Summary

Income protection payments you received from the Fund in the 2015-16 income year are attributable to your employment activities in the 2015-16 income year. As such, you do not meet the maximum earnings as employee condition in section 290-160 of the ITAA 1997.

Accordingly, you cannot deduct personal superannuation contributions you made to the Fund in the 2015-16 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 (or their dependants after their death), can claim the deduction for contributions in the income year the contributions are made. However, to deduct the contributions, the person must satisfy the conditionsin sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997.

In this case, the relevant conditions are found in section 290-160 of the ITAA 1997 (Maximum earnings as employee condition).

Subsection 290-160(1) of the ITAA 1997 applies if, in the income year in which you make the contribution, you engaged in any of the following activities:

• 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 you being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA).

The Commissioner of Taxation (the Commissioner) discusses the operation of the maximum earnings as employee condition in Taxation Ruling TR 2010/1 Income tax: superannuation contributions. In paragraphs 57, 59 and 60 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.²¹ ... 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'.

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, you were employed by the Employer during the 2015-16 income year. As a common law employee of the Employer, you are taken to have been engaged in the employment activity during that income year. Therefore, to deduct contributions made in the 2015-16 income year, you must meet the maximum earnings as employee condition in section 290-160.

In accordance with subsection 290-160(2) of the ITAA 1997, you can deduct personal contributions made to the Fund in the 2015-16 income year only if less than 10% of the total of the following is attributable to the employment activity:

• your assessable income for the income year;
• your reportable fringe benefits total for the income year;
• the total of your reportable employer superannuation contributions for the income year,

The term 'reportable employer superannuation contributions' includes salary sacrifice contributions made for the person's benefit in that income year.

In paragraph 64 of TR 2010/1, the Commissioner lists the amounts that are attributable to the 'employment' activity and, as far as relevant, includes the following:

• salary or wages (as used in its ordinary meaning) from the activity;
• allowances and other payments earned by an employee;
• 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 you to compensate you for the loss of employment income due to your illness. The employment that gave rise to your entitlement to the payments was ongoing. As such, these payments are attributable to the employment activity.

Based on the above, all the amounts you received in the 2015-16 income year are attributable to your employment activities. As such, you do not meet the maximum earnings as employee condition in subsection 290-160(2) of the ITAA 1997.

Therefore, you cannot deduct personal superannuation contributions you made to the Fund in the 2015-16 income year.