Family trust denied superannuation deduction for trustee directors

by Stuart Jones

The Federal Court has held that a family trust was not entitled to a deduction for superannuation contributions made on behalf of the husband and wife directors as they were not "employees" of the corporate trustee.

At first instance, in Kelly v FCT [2012] FCA 423 (reported at 2012 LTN 80 [6]), the Court ruled that the taxpayer (a partner in a law firm) had only successfully assigned a part of his partnership interest to his family trust. The Court then gave the taxpayer an opportunity to make submissions on the superannuation deduction issue which had arisen late in the trial.

The Court held that the family trust was not entitled to a superannuation deduction under ss 290-60 and 290-70 of the ITAA 1997 as the taxpayer and his wife were not "employees" within s 12(2) of the Superannuation Guarantee (Administration) Act 1992. The Court rejected the taxpayer's argument that the superannuation payment brought them within the concept of "entitled to payment" for the purposes of s 12(2) of the SGAA. The Court also dismissed that taxpayer's claim that he had an entitlement to payment based on a quasi-contractual right or claim for quantum meruit (ie a promise to pay). The Court noted that directors of a company are not entitled to claim remuneration for services performed at common law (or under s 202A of the Corporations Act 2001) unless specifically provided for in the company's constitution or approved by shareholders. As there was no resolution by the trustee company to establish an entitlement to payment for the performance of their duties as directors, the Court ruled that the directors were not "employees" of the corporate trustee within s 12(2) of the SGAA. (Kelly v FCT (No 2) [2012] FCA 689, Federal Court, Besanko J, 29 June 2012.)