Edited version of your written advice

Authorisation Number: 1051340881113

Date of advice: 27 February 2018

Ruling

Subject: Deductibility of personal superannuation contributions

Questions

1. For the purposes of section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997), does the maximum earnings as an employee condition in section 290-160 of the ITAA 1997 apply to the taxpayer in the 2016-17 income year?

2. Is the taxpayer entitled to claim a deduction in respect of their personal superannuation contributions for the 2016-17 income year?

Answers

1. No

2. Yes

This ruling applies for the following period:

Year ended 30 June 2017

The scheme commenced on:

1 July 2016

Relevant facts and circumstances

The taxpayer (your client) is less than 75 years of age.

Your client received income protection insurance benefits during the 2016-17 income year. These benefits were paid to your client by the Payer.

As part of your client’s income protection benefits, the Payer made non-concessional superannuation contributions on your client’s behalf to a complying superannuation fund (the Fund). These contributions were made in the 2016-17 income year.

The Payer included the superannuation contributions as gross payments in your client’s 2016-17 payment summary and withheld an amount of tax.

Your client had ceased employment prior to June 2016 due to injury and did not receive any employment income during the 2016-17 income year.

Assumptions

You have been advised and you agree with the following assumptions being made in the Notice of Private Ruling to be issued for your client:

(a) The notice requirements in section 290-170 of the ITAA 1997 will be satisfied.

(b) Your client’s tax return for the 2016-17 income year will not be lodged prior to the notice requirements being satisfied.

(c) The deduction for the contributions will not add to or create a loss for your client in the 2016-17 income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 290-150

Income Tax Assessment Act 1997 Subsection 290-150(2)

Income Tax Assessment Act 1997 Section 290-155

Income Tax Assessment Act 1997 Subsection 290-160(1)

Income Tax Assessment Act 1997 Paragraph 290-160(1)(a)

Income Tax Assessment Act 1997 Paragraph 290-160(1)(b)

Income Tax Assessment Act 1997 Section 290-170

Income Tax Assessment Act 1997 Subsection 290-170(2)

Reasons for decision

Personal superannuation contributions for the 2016-17 income year

A person can claim a deduction for personal contributions made to their superannuation fund for the purpose of providing superannuation benefits for themselves under section 290-150 of the ITAA 1997.

However, subsection 290-150(2) of the ITAA 1997 provides that the conditions in sections 290-155, 290-160 (if applicable), 290-165 and 290-170 must all be satisfied before the person can claim a deduction for the contributions made in that income year.

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, that fund must be a complying superannuation fund for the income year in which the contribution is made.

In this instance, your client made personal contributions to their superannuation fund (the Fund). As this fund is a complying superannuation fund, the condition in section 290-155 of the ITAA 1997 is satisfied for the 2016-17 income year.

Maximum earnings as an employee condition

Subsection 290-160(1) of the ITAA 1997 provides that the maximum earnings test will apply if, in the income year in which the contribution is made, a person is engaged in any of the following activities:

● holding an office or appointment;

● 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).

The operation of the maximum earnings as an employee test is discussed in Taxation Ruling TR 2010/1 Income tax: superannuation contributions (TR 2010/1). Relevantly, paragraphs 57 and 58 of TR 2010/1 state:

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.

Income protection payments are meant to compensate a person for the loss of employment income and, as such, are similar in nature to workers’ compensation payments. Therefore, a person who receives these payments but is not employed during the income year will not be subject to the maximum earning test.

Your client ceased working for their former employer prior to June 2016. During the 2016-17 income year and your client received income protection payments but did not receive any employment income.

As your client did not take part in any of the activities mentioned in subsection 290-160(1), they would not be treated as an employee for the purposes of the SGAA.

Accordingly, your client will not be subject to the maximum earnings test under section 290-160 of the ITAA 1997.

Age-related conditions

Under subsection 290-165(2) of the ITAA 1997, the ability to claim a deduction ceases for contributions that are made after 28 days from the end of the month in which the person making the contribution turns 75 years of age.

As your client will be under 75 years of age at all times in the relevant income year, this condition is satisfied.

Notice of intent to deduct conditions

Section 290-170 of the ITAA 1997 provides that the taxpayer must give the trustee of the Fund a valid notice, in the approved form, of their intention to claim a deduction and receive an acknowledgement of receipt of the notice from the trustee.

Section 290-170 of the ITAA 1997 also provides that the taxpayer must give the notice to the trustee of the Fund by the earlier of the date of the taxpayer’s income tax return being lodged or the end of the income year following the year in which the contribution was made.

A notice will be valid if:

● the notice is in respect of the contribution;

● the notice does not include all or part of an amount covered by a previous notice;

● at the time when the notice is given:

● the taxpayer is a member of the Fund; or

● the trustee of the Fund holds the contribution; or

● the trustee of the Fund has not begun to pay a superannuation income stream based in whole or part on the contribution;

● before the notice is given:

● a contributions-splitting application has not been made in relation to the contribution; and

● the trustee of the Fund has not rejected the application.

Provided that your client sends the trustee of the Fund a valid notice in the approved form before their income tax return for the 2016-17 income year is lodged or by 30 June 2018, whichever is the earlier, and the trustee duly acknowledges the notice, the notice of intent to deduct conditions under section 290-170 of the ITAA 1997 will be satisfied.