The taxpayer has filed a notice of appeal to the Full Federal Court against the decision of Besanko J in Kelly v FCT (No 2) [2012] FCA 689. Federal Court had held that a family trust was not entitled to a deduction under s 290-60 of the ITAA 1997 for superannuation contributions made on behalf of the husband and wife trustee directors as they were not “employees” of the corporate trustee.
[LTN 149, 3/8]
Extracts from ITAA97
290-60 – Employer contributions deductible
(1) You can deduct a contribution you make to a * superannuation fund, or an * RSA, for the purpose of providing * superannuation benefits for another person who is your employee when the contribution is made (regardless whether the benefits are payable to a * SIS dependant of the employee if the employee dies before or after becoming entitled to receive the benefits).
Note: ….
(2) However, the conditions in sections 290-70, 290-75 and 290-80 must also be satisfied for you to deduct the contribution.
…
290-70 – Employment activity conditions
To deduct the contribution, the employee must be:
(aa) your employee (within the expanded meaning of employee given by section 12 of the Superannuation Guarantee (Administration) Act 1992 ); or
(a) engaged in producing your assessable income; or
(b) an Australian resident who is engaged in your business.
Extracts from [2012] FCA 689
Catchwords TAXATION – superannuation deduction – where applicant a director of trustee company of applicant’s family trust – where applicant received superannuation benefit from trustee company – whether payment allowable deduction for purposes of s 290-60 of Income Tax Assessment Act 1997 (Cth) – whether applicant an employee for purposes of s 12(2) Superannuation Guarantee (Administration) Act 1992 (Cth) – whether payment evidence of “entitlement to payment” – whether applicant entitled to quantum meruit for services to trustee company – where constitution of trustee company provided for remuneration of directors by way of resolution of company in general meeting.
16. Subsection 12(2) of the Superannuation Guarantee (Administration) Act is the relevant subsection. It is in the following terms:
A person who is entitled to payment for the performance of duties as a member of the executive body (whether described as the board of directors or otherwise) of a body corporate is, in relation to those duties, an employee of the body corporate.
23. Subsection 140(1) of the Corporations Act 2001 (Cth) provides that a company’s constitution (if any) and any replaceable rules that may apply have effect as a contract between, among others, the company and each director and company secretary. One of the replaceable rules – the rule in subs 202A(1) – provides that directors of a company are to be paid the remuneration that the company determines by resolution.
27. As to the submission that Mr Kelly and his wife had an entitlement to payment based on a quasi-contractual right or claim for quantum meruit, I reject that submission. Two factual matters should be noted. First, clause 26.1 of the constitution of 351 Pty Ltd provides that the remuneration of the directors shall be such sums (if any) as shall from time to time be voted to them by resolution of the company in general meeting. Secondly, there is no evidence before the Court of a resolution by 351 Pty Ltd within clause 26.1 of its constitution.
28. It is true, as the applicant points out, that under the trust deed for the Kelly Family Trust the trustee is given the power to pay superannuation to directors in the case of a corporate trustee. However, that is not to the point in considering whether the provisions of subs 12(2) of the Superannuation Guarantee (Administration) Act are engaged where it is the company’s constitution which is relevant, and indeed, decisive.