Edited version of private advice

Authorisation Number: 1051615058728

Date of advice: 19 February 2020

Ruling

Subject: Deductibility of personal superannuation contributions

Question

Are you entitled to claim a deduction under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997) for personal superannuation contributions?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

The scheme commenced on:

1 July 2012

Relevant facts and circumstances

The taxpayer was born on XX September 19XX and currently aged XX.

Since 1985, the taxpayer has been employed on and off by the Employer.

On XX June 20XX, the taxpayer took out an income protection policy with the Insurer under their own name. The taxpayer paid all the premiums of this policy personally. The taxpayer advised that they were not employed by the Employer when they took out this policy.

In September 20XX, the taxpayer had a heart attack which they managed to treat with medication.

In April 20XX, the taxpayer had another heart attack which resulted in them having heart bypass surgery.

On XX April 20XX, the taxpayer had heart bypass surgery. The taxpayer developed a memory/cognitive impairment which they believe was most likely caused by the complications which occurred during their surgery.

This memory/cognitive impairment has resulted in the taxpayer undertaking tasks at the Employer which are fairly basic and require less mental capacity compared to what they did previously.

The taxpayer advised that their heart problems and related complications were not caused by their employment activities with the Employer.

The taxpayer made contributions to a complying self-managed superannuation fund (the SMSF).

In each of the income years concerned, according to the information we have on our systems, you:

·         were employed by the Employer as a financial planner/adviser;and

·         received payments from an income protection policy held with the Insurer.

The income protection payments made to the taxpayer by the Insurer for each of the income years did not include any contributions to their superannuation.

On XX November 20XX, the taxpayer provided us the written notices which they have submitted to and have been acknowledged by the trustee of the SMSF for the each of income years concerned. The notices for each financial year have been given to the trustee before the end of the following income year to which the contribution relates and prior to the relevant income tax returns being lodged and have been acknowledged by the trustee.

On XX January 20XX, the taxpayer provided us copies of their payslips which confirm that they were employed by the Employer from March 20XX (before their heart bypass surgery) and from June 20XX (after their heart bypass surgery).

Based on the information we have on our systems, the deduction amounts relating to personal contributions made to the taxpayer's SMSF will not add to or create a loss in each of the income years concerned.

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 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 Section 290-165

Income Tax Assessment Act 1997 Section 290-170

Income Tax Assessment Act 1997 Subsection26-55(2)

Reasons for decision

Personal 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 Income Tax Assessment Act 1997 (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, it must be made to a complying superannuation fund for the income year of the fund in which you made the contribution.

The facts of this case indicate that the taxpayer has satisfied this condition for each of the income years concerned.

Maximum earnings as an employee condition - 10% test

Former 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).

Former 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 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 taxpayer's case, the facts show that they are an employee in each of the income years concerned as they were employed by the Employer as a financial planner/adviser. Therefore, they are required to meet the maximum earnings as an employee condition, that is, income attributable to their 'employment activities' must be less than 10% of their total assessable income, reportable fringe benefits and reportable employer superannuation contributions for the income years concerned.

As the taxpayer has received payment from income protection policies, it must be determined whether the amounts they 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 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 this taxpayer's case the income protection payments they received 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 you receiving the income protection payments.

In view of the above and the facts provided, it is considered that the taxpayer will satisfy the requirements that are prescribed 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.

The case facts suggest that the taxpayer satisfies this condition for all of the income years concerned.

Notice of intent to deduct 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.

Section 290-170 of the ITAA 1997 provides that you must give the trustee of the fund a valid notice, in the approved form, of your intention to claim a deduction by the earlier of:

·         the date of your client's income tax return being lodged; or

·         the end of the income year following the year in which the contribution was made

and you must receive an acknowledgement of receipt of the notice from the trustee.

A notice will be valid as long as the following conditions are satisfied:

·         the notice is in respect of the contribution;

·         the notice is not for an amount covered by a previous notice;

·         at the time when the notice is given:

o   your client is a member of the fund;

o   the fund trustee holds the contribution (for example, a notice will not be valid if a partial roll-over of the superannuation benefit which includes the contribution covered in the notice has been made);

o   the fund trustee has not begun to pay a superannuation income stream based on the contribution; or

·         before the notice is given:

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

o   the fund trustee has not rejected the application.

Based on the case facts, we accept that the taxpayer satisfies this condition.

Deduction limited by amount specified in the 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.

As the amounts the taxpayer are seeking to claim equals to the amount stated in the notices for each of the income years concerned, they will also satisfy this requirement.

Deduction limits

The allowable deduction is limited under subsection 26-55(2) of the ITAA 1997 to the amount of assessable income remaining after subtracting all other deductions (excluding previous years' tax losses and any deductions for farm management losses) from a taxpayer's assessable income. Accordingly, a deduction for personal superannuation contributions cannot add to or create a loss.

The case facts suggest that the deductions relating to the contributions the taxpayer made to their SMSF will not add to or create a loss in the any of the income years concerned.

Deduction for the personal superannuation contribution

As the taxpayer will satisfies all the required conditions under section 290-150 of the ITAA 1997, they can claim a deduction for their personal contributions covered by the notices of intent and acknowledgments in each of the income years concerned.