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29 Jul 14 Decision Impact Statement - Kelly

The ATO has issued a Decision Impact Statement in relation to the decision of the Full Court of the Federal Court in Kelly v FCT [2013] FCAFC 88; 2013 ATC 20-408.

The case concerned whether certain interests in a partnership had been effectively and validly assigned to certain trustees; and whether a superannuation contribution for the directors of a corporate trustee (the taxpayer and his wife) was an allowable deduction.

In relation to the superannuation issue, the Full Court held that the taxpayer and his wife were not "employees" of the company for the purposes of s 290 60 of the ITAA 1997, as they did not fall within the expanded definition of that term in s 12(2) of the Superannuation Guarantee (Administration) Act 1992. As directors of the corporate trustee, the taxpayer and his wife had no entitlement to remuneration unless a resolution was passed in a general meeting to that effect. Without such a resolution, the taxpayer and his wife were not "entitled to payment", s 12(2) did not apply and the trustee was not entitled to a deduction under s 290 60 of the ITAA 1997.

The ATO notes that the Full Federal Court's decision is consistent with the Commissioner's view in paragraph 243 of Taxation Ruling TR 2010/1 that a superannuation contribution for the director of a corporate trustee can only be deducted from the income of the trust if the director is a common law employee of the trust engaged in producing the assessable income of the trust or its business.


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