Issue
Are superannuation contributions made by a taxpayer company (company A) on behalf of a person in the 2006-07 year of income required to be combined with the total of the contributions made by another company (company B) on behalf of that person in the 2006-07 year of income for the purpose of subsection 82AAC(2) of the Income Tax Assessment Act 1936 (ITAA 1936) even though the two companies were associates for only part of the 2006-07 year of income?
Decision
Yes. Superannuation contributions made by company A on behalf of a person in the 2006-07 year of income are required to be combined with the total of the contributions made by company B on behalf of that person in the 2006-07 year of income for the purpose of subsection 82AAC(2) of the ITAA 1936 even though the two companies were associates for only part of the 2006-07 year of income.
Facts
Company A had a majority shareholding in company B until the end of August 2006. The two companies were therefore associates of each other within the meaning of section 318 of the ITAA 1936.
Up until the end of August 2006, the relevant person was a director and shareholder of company A and a director and employee of company B.
Company B made superannuation contributions to a complying superannuation fund for the person in that person's capacity as an employee of company B in the period between 1 July 2006 and the end of August 2006. No contributions were made by company A for the person during this period.
The amount of the contributions made by company B for the person was less than the person's age-based deduction limit for the 2006-07 year of income.
At the end of August 2006, all shares in company B were acquired by an unrelated party.
From the end of August 2006, the person ceased to be a director of company B but continued as an employee of the company.
Company B continued to make contributions for the person in his capacity of employee after the end of August 2006.
The person continued to be a director and shareholder of company A.
Company A made contributions for the person to a complying superannuation fund for the 2006-07 year of income prior to the end of the income year.
Reasons for Decision
For a contribution made by a taxpayer on behalf of a person to be an allowable deduction to the taxpayer, the taxpayer must satisfy the requirements of section 82AAC of the ITAA 1936. Under subsection 82AAC(1) of the ITAA 1936, the amount of a contribution made by a taxpayer will be allowable as a deduction to the taxpayer for the year of income in which the contribution was made provided the three conditions in subsection 82AAC(1) of the ITAA 1936 are satisfied.
Under subsection 82AAC(2) of the ITAA 1936, the total of the deductions allowable under subsection 82AAC(1) of the ITAA 1936 for contributions made by a taxpayer, or by a taxpayer and one or more associates of the taxpayer, in a year of income in respect of a particular person must not exceed the person's deduction limit for the year of income (as worked out under subsection 82AAC(2A) of the ITAA 1936).
Under subsection 82AAC(3) of the ITAA 1936, the term 'associate', in relation to a person, has the same meaning as in section 318 of the ITAA 1936.
Section 6 of the ITAA 1936 defines a 'person' for the purposes of that Act to include a company. Therefore, the definition of 'associate' in section 318 of the ITAA 1936 is relevant.
Subsection 82AAC(2) was inserted into the ITAA 1936 by Taxation Laws Amendment (Superannuation) Act 1992 . As to the purpose or object underlying the provision, the Explanatory Memorandum to the Taxation Laws Amendment (Superannuation) Bill 1992 relevantly stated that: These deduction limits apply to a particular employer irrespective of superannuation contributions made by another employer for the benefit of the same employee, except where the two employers are associates. Therefore, if an employee works for two employers, either at the same time or at different times during the year of income, both employers are entitled to deductions for superannuation contributions up to the age based limit for the employee.
Having regard to the ordinary meaning conveyed by the text of subsection 82AAC(2) of the ITAA 1936 and the purpose or object underlying the provision, the total contributions made by company A on behalf of the person in the 2006-07 year of income are required to be combined with the total of the contributions made by company B on behalf of that person in the 2006-07 year of income for the purposes of subsection 82AAC(2), even though the two companies were not associates for the entire year of income.
When the provision is read as a whole, the phrase 'in a year of income' has a nexus to the term 'associates' as well as to other terms in the provision. Further, because of the proximity of the phrase 'in a year of income' to the term 'associates', it is difficult to argue that the words 'in a year of income' do not refer to the words closest to it. This requires, in the absence of other compelling evidence, a conclusion that the legislative intent is best achieved by adopting the position that a taxpayer and its associates during the year of income are required to combine their total contributions for the purpose of subsection 82AAC(2) of the ITAA 1936 for the year of income.
There is nothing in the text of subsection 82AAC(2) of the ITAA 1936 which states, or anything in the extrinsic material which indicates, that the companies are required to be associates at the time the contributions are made. Subsection 82AAC(2) simply requires contributions made by a taxpayer and one or more associates of the taxpayer, in a year of income in respect of a particular person to be combined for the purpose of determining the total of the deductions allowable to the taxpayer in respect of the person. The taxpayer and the associate are effectively viewed as the one entity for the entire year of income for the purpose of subsection 82AAC(2), whether or not they are associates for the entire year of income.
Accordingly, the fact that the two companies have been associated for at least one day in the income year results in all contributions made during the year by both companies being combined for the purpose of subsection 82AAC(2) of the ITAA 1936. The one deduction limit applies for all contributions made by both companies in the year of income. Note: the above analysis will only apply until 30 June 2007 as section 82AAC has been repealed by Superannuation Legislation Amendment (Simplification) Act 2007 , applicable to the 2007-08 year of income and later years.