Can my wife claim a deduction for her personal superannuation contribution if she got the Parental Leave Pay?

Question

My wife is self-employed and had a baby last year for which she claimed the Parental Leave Pay from the Federal Government (a bit over $10K over 18 weeks). She had to enter the amount in Item 1 - Salary or wages in her Tax Return.

She also claimed a deduction for personal superannuation contributions of $5000 she made during the year. The requirements to claim the personal superannuation contribution deduction are that you cannot have more than 10% of your total accessible income from being an employee. As my wife is fully self-employed I thought she would have met this criteria. (Note: all other requirements to claim the deduction have been met).

However, the ATO has sent my wife a letter stating that her deduction for personal superannuation contribution was not allowed due to the amount shown at Item 1 - Salary or wages being more than 10% of her total accessible income for the year.

I thought that since this amount was paid by the government and not from any employer it should not be counted as employment income. So who is correct?

Answer 1

You are correct and the ATO is incorrect.

Basically the ATO staff are as lazy as they can be. If you have entered the Parental pay leave at Item 1 - Salary or wages, as you correctly have, the ATO staff will not go into the background details of whom the payment is from by checking the ABN (i.e. finding out that the payment comes from Centrelink and not an employer). You have to basically inform them in writing as an attachment with your Tax Return.

As you have not done that, no matter how many times you call the ATO to go through your case, even if the Customer Service Officer ends up agreeing with you, it then gets sent to someone else to review it. And unless they have something in writing to explain the issue they will just dismiss it and still disallow the deduction.

So what you have to do is to download an Objection Form, fill it out and explain your case in detail and fax it to the ATO together with any evidence supporting your case . As this is now in writing explaining your case you should get someone at the ATO who actually corrects the ATO error, but be aware it will take some time and the ATO may ask you to pay any monies due in the mean time. Try to get the payment deferred if you can until the matter is resolved.

When you talk to ATO staff on the phone regarding this issue always ask them for their name and the reference number. Record this down together with the time and date of the call. You never know when you might need this information, especially if you are given the wrong information by someone and you act on it.