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Edited version of private advice

Authorisation Number: 1012677368280

Ruling

Subject: Personal super contribution - deduction

Question 1

Will the amounts of productivity component, unused annual leave and unused long service leave paid on termination of employment be counted for the purposes of determining the maximum earnings as employee condition under section 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Are you entitled to claim a deduction under section 290-155 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following periods:

The year ended 30 June 2014.

The scheme commences on:

1 July 2013.

Relevant facts and circumstances

Your resignation with your employer was effective close of business on a date prior to the commencement of the 2013-14 income year.

During the 2013-14 income year you received a lump sum payment from the employer being for your salary up to your resignation date, productivity bonus payment, unused annual leave and unused long service leave.

You are a member of a complying Australian Superannuation Fund (the Fund).

During the 2013-14 income year you began receipt of a Pension from the Fund.

During the 2013-14 income year you made a personal superannuation contribution into the Fund, which was less than $25,000.00.

You have provided the Fund with a notice of intent to claim or vary deduction for personal super contributions form and the Fund has acknowledged receipt of your intention to claim a deduction.

You were less than 75 years of age during the 2013-14 income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 995-1.

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

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 Section 290-170.

Superannuation Guarantee (Administration) Act 1992 (SGAA)

Reasons for decision

Summary

The amounts of the productivity component, unused annual leave and unused long service leave you received from your previous employer during the 2013-14 income year are not subject to the maximum earnings test under section 290-160 of the ITAA 1997 because you were not engaged in any employment activities during the 2013-14 income year.

As you satisfy the conditions in sections 290-155, 290-165 and 290-170 of the ITAA 1997 and are not required to satisfy section 290-160, you will be entitled to claim a deduction for superannuation contributions made in the 2013-14 income year provided the deduction does not add to or create a tax loss in that income year.

Detailed reasoning

Personal deductible superannuation contributions

Under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997) a taxpayer can claim a deduction in respect of personal contributions made to a superannuation fund or retirement savings account (RSA) for the purpose of providing superannuation benefits for the taxpayer.

However, the conditions in sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997 must all be satisfied before a taxpayer can claim a deduction for the contributions made in that income year.

Maximum earnings as an employee condition:

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

For those persons who are engaged in any 'employment' activities in the 2014-15 income year, subsection 290-160(2) of the ITAA 1997 prescribes that a deduction for personal contributions can only be claimed where the sum of their:

Where a person is engaged in activities during the income year that would make them an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA) then they will need to satisfy the 10% rule in order to claim a deduction for their personal superannuation contributions. It should be noted that the level of superannuation support by an employer or another person is no longer a relevant factor under this condition.

In Taxation Ruling TR 2010/1 titled 'Income tax: superannuation contributions', the Commissioner discusses the operation of the maximum earnings as an employee condition. In paragraph 58 of TR 2010/1 the Commissioner states that those persons who have not engaged in an 'employment' activity in the income year in which they make a contribution are not subject to the maximum earnings test.

The employment activity condition outlined in subsection 290-160(1) of the ITAA 1997 has two parts. To satisfy this condition, therefore, a taxpayer must both:

Persons who although receiving workers' compensation payments are not employed at any time during the year, are not subject to the maximum earnings test.

Furthermore, the Commissioner has given an example which refers to the 'maximum earnings test'. At paragraphs 88 and 89 of TR 2010/1 the Commissioner states:

88. Caitlin terminates her employment with Bling Pty Ltd on 30 June 2009 and was paid unused long service leave and annual leave on 3 July 2009. Caitlin made a contribution of $5,000 to her complying superannuation fund on 9 July 2009. Caitlin was not engaged in any employment activities for the 2009-10 income year.

89. As Caitlin was not engaged in any employment activities in the 2009-10 income year, she does not need to meet the earnings test in relation to her $5,000 contribution.

Therefore a person is engaged in an employment activity when they are physically carrying out the obligations and duties of the job or work and receive a payment in the form of salary or wages in return for labour or services.

In this case, you ceased employment with your employer prior to the commencement of the 2013-14 income year. You have advised that you were not engaged in activities during the 2013-14 income year that would make you an employee for the purposes of the SGAA.

The pension income you received by your superannuation fund is not income that is attributable to employment as an employee.

Even though you received a lump sum payment during the 2013-14 income year from your previous employer, because you terminated your employment with the employer prior to the commencement of the 2013-14 income year you are not considered to be engaged in an "employment" activity.

Therefore, the total amount of the pension income and the lump sum payment you received from your previous employer during the 2013-14 income year are not required to be taken into account for the purposes of the 10% rule and are not subject to the maximum earnings test under section 290-160 of the ITAA 1997.

Hence, section 290-160 of the ITAA 1997 does not apply in the income year in which you made personal superannuation contributions.

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 person made the contribution.

In this case, you have made personal superannuation contributions to a complying superannuation Fund, in the 2013-14 income year. Therefore the complying superannuation fund condition is satisfied.

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 you were less than 75 years of age in the year the contributions were made, you have satisfied the age-related conditions.

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:

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

You have provided the Fund with a notice of intent to claim or vary deduction for personal super contributions form and the Fund has acknowledged receipt of your intention to claim a deduction.

Therefore, the notice of intent to deduct conditions under section 290-170 of the ITAA 1997 will be satisfied.

Deduction limits

A person can claim a full deduction for the amount of the contribution made up to the concessional contributions cap.

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 year's tax losses and any deductions for farm management losses) from a taxpayer's assessable income. Thus a deduction for personal superannuation contributions cannot add to or create a loss.

Contribution limits

The concessional contributions cap for the 2013-14 income year is $25,000 if you are aged 49 years or over on the last day of the previous income year.

Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a person.

Therefore, as you were over 49 years of age in the 2013-14 income year, you can claim a deduction up to the concessional contributions cap of $25,000.

Conclusion

As you satisfy the conditions in sections 290-155, 290-165 and 290-170 of the ITAA 1997 and are not required to satisfy section 290-160, you will be entitled to claim a deduction for superannuation contributions made in the 2013-14 income year provided the deduction does not add to or create a tax loss in that income year.

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