Edited version of private ruling

Authorisation Number: 1011691926121

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Ruling

Subject: Deduction for personal superannuation contributions

Question

Can you claim a deduction for personal superannuation contributions to be made in the 2011-12 income year under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Advice/Answers

Yes

This ruling applies for the following period

Year ending 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You are under 75 years of age.

You currently work full time.

You will retire in the 2011-12 income year.

You will not derive income from an employer in the 2011-12 income year.

You intend to make personal superannuation contributions in the 2011-12 income year and claim a deduction for the contribution.

You intend to make the contribution a complying superannuation fund.

The contribution is being made for the purpose of providing superannuation benefits to you or your dependants if you die before or after becoming entitled to the benefits.

A valid notice under section 290-170 of the Income Tax Assessment Act 1997 (ITAA 1997) will be lodged with the trustee of the superannuation fund and the trustee of the superannuation fund will acknowledge that notice.

The deduction to be claimed under section 290-150 of the ITAA 1997 will not add to or create a loss.

Relevant legislative provisions

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

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 Section 290-165

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

Income Tax Assessment Act 1997 Section 290-170

Income Tax (Transitional Provisions) Act 1997 Subsection 292-20(2)

Superannuation Guarantee (Administration) Act 1992 Subsection 12(11)

Superannuation Industry (Supervision) Regulations 1994 Subregulation 1.03(1)

Superannuation Industry (Supervision) Regulations 1994 Regulation 7.04

Superannuation Industry (Supervision) Regulations 1994 Subregulation 7.04(1)

Reasons for decision

Summary

You are entitled to claim a deduction for the personal superannuation contributions to be made in the 2011-12 income year as:

· you intend to make the contribution to a complying superannuation fund; and

· you advise that you will retire on 30 June 2011 and you will not derive any income from an employer in the 2011-12 income year, hence the maximum earnings as an employee condition does not apply; and

· you meet the age-related condition; and

· a valid notice will be lodged with the trustee of your superannuation fund and the trustee of your superannuation fund will acknowledge that notice; and

· the deduction to be claimed will not add to or create a loss

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 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.

This condition is satisfied as you intend to make the contribution a complying superannuation fund.

Maximum earnings as an employee condition:

The condition in section 290-160 of the ITAA 1997 requires that if a taxpayer is engaged in any activities that results in them being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA) then less than 10% of the total of their assessable income and reportable fringe benefits must be attributable to those activities. Subsection 290-160(1) states:

This section applies if:

· in the income year in which you make the contribution, you engage in any of these activities:

· holding an office or appointment;

· performing functions or appointment;

· 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 (assuming that subsection 12(11) of that act has not been enacted).

You advise that you will retire in the 2011-12 income year and you will not derive any income from an employer in the 2011-12 income year. Consequently, section 290-160 of the ITAA 1997 does not apply in this instance.

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.

You meet the age-related condition.

Notice of intent to deduct conditions:

Section 290-170 of the ITAA 1997 requires a person to provide a valid notice of their intention to claim the deduction to the trustee of their superannuation fund. The notice must be given before the earlier of:

· the date you lodge your income tax return for the income year in which the contribution was made; or

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

In addition, you must also have been given an acknowledgement of the notice by the trustee of the superannuation fund.

A notice will be valid as long as the following conditions apply:

· the notice is in respect of the contributions;

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

· at the time when the notice is given:

· you are a member of the fund or the holder of the retirement savings account (RSA);

· the trustee or RSA provider 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);

· the trustee or RSA provider has not begun to pay a superannuation income stream based on the contribution; or

· before the notice is given:

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

· the trustee or RSA provider has not rejected the application.

This condition is satisfied as a valid notice under section 290-170 of the ITAA 1997 will be lodged with the trustee of your superannuation fund and the trustee of your superannuation fund will acknowledge that notice.

Deduction limits:

A person can claim a full deduction for the amount of the contribution made.

However, 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 taxpayers assessable income. Thus, a deduction for personal superannuation contributions cannot add to or create a loss.

This condition is satisfied as the deduction to be claimed under section 290-150 of the ITAA 1997 will not add to or create a loss.

Contribution limits:

Concessional contributions made to superannuation funds in the 2011-12 income year are subject to an annual cap of $25,000. Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a person.

A person will be taxed on concessional contributions over the $25,000 cap at a rate of 31.5%. The superannuation fund can be asked to release money to pay this excess contributions tax.

Transitional concessional contributions cap:

Between 1 July 2007 and 30 June 2012, a transitional concessional contributions cap will apply. The annual cap is $50,000 in the 2011-12 income year for people aged 50 or over (subsection 292-20(2) of the Income Tax (Transitional Provisions) Act 1997).

Acceptance of contributions

Whether a regulated superannuation fund is able to accept contributions is determined under the Superannuation Industry (Supervision) Act 1993 (SIS Act) and the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations).

The SIS Act and SIS Regulations are administered by the Commissioner only so far as they relate to self managed superannuation funds (SMSFs). Authority to make decisions under these legislative provisions, as they relate to non-SMSFs, rest with the Australian Prudential Regulation Authority (APRA).

Notwithstanding the above, regulation 7.04 of the SIS Regulations, sets out the circumstances under which a regulated superannuation fund can accept contributions for a member.

Condition for accepting contributions

Under the SIS Act, regulation 7.04 of the SIS Regulations, sets out the circumstances under which a regulated superannuation fund can accept contributions for a member.

Subregulation 7.04(1) states:

A regulated superannuation fund may accept contributions only in accordance with the following table and subregulations (2), (3), (4) and (6).

Please note, for a member not under 65, but under 70, Item 2 of the table states:

Contributions that are made in respect of the member that are:

· mandated employer contributions; or

· if the member has been gainfully employed on at least a part-time basis during the financial year in which the contributions are made;

· employer contributions (except mandated employer contributions); or

· member contributions

Therefore, for a fund to accept a contribution made in respect of a member who has reached the age of 65 but not age 70, the member must be gainfully employed on at least a part-time basis during the financial year in which the contributions are made.

Under subregulation 1.03(1) of the SIS Regulations 'gainfully employed' means:

employed or self employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.

In respect of part-time gainful employment, a person must be gainfully employed for at least 10 hours and less than 30 hours each week.

The issue of a fund being able to accept contributions, and the meaning of 'gainfully employed', is also discussed in the APRA Superannuation Circular I.A.1 Contribution and Accrual Standards for Regulated Superannuation Funds. It states in paragraph 21 that:

'Gainfully employed' means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment. The concept of 'gain or reward' envisages receipt of remuneration such as salary or wages, business income, bonuses, commissions, fees or gratuities, in return for personal exertion from the above mentioned activities.

As stated in the Circular, a person must be in receipt of remuneration in return for his or her personal exertion to be gainfully employed. It is clear from this comment that passive income such as dividends, interest, pensions, the letting of properties, et cetera would not fall within the meaning of gain or reward. Therefore, receipt of such income would not ordinarily constitute gainful employment.

It should be noted that a fund, given the above circumstances, would be in breach of the SIS requirements if it accepts contributions from a person who was not gainfully employed. Furthermore, the breach could jeopardize the fund's complying status.

It should be further noted that there is no provision in either the SIS Act or the SIS Regulations that allows the Commissioner or APRA to exercise a discretion to ignore the work test in relation to the acceptance of contributions.

Conclusion:

In this case, as all conditions have been satisfied, you are entitled to claim a deduction under section 290-150 of the ITAA 1997 for the personal superannuation contributions to be made in the 2011-12 income year.

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