MS 2021/D2


Income Tax Assessment Act 1997

I, Louise Clarke, Deputy Commissioner of Taxation, make this determination under subsection 307-125(5) of the Income Tax Assessment Act 1997.

Draft Legislative Instrument

1. Name of instrument

This determination is the Income Tax: Post-30 June 2021 alternative method for calculating the tax free component and taxable component of a superannuation benefit for recipients of certain pensions under the Defence Force Retirement and Death Benefits Act 1973 and the Trust Deed referred to in section 4 of the Military Superannuation and Benefits Act 1991.

2. Commencement

This determination commences on the day after it is registered on the Federal Register of Legislation.

3. Application

This instrument specifies an alternative method for calculating the tax free component and taxable component of a superannuation benefit under section 307-125 of the Income Tax Assessment Act 1997. It applies to superannuation benefits that are superannuation lump sums specified in clause 4 below that have been paid on or after 1 July 2021.

(a)
The alternative method is that:

(i)
the first superannuation benefit paid from the superannuation interest identified in subclause 3(b) on or after 1 July 2021 is taken to be paid in a way such that the tax free component and the taxable component of the benefit bears the same proportion to the amount of the benefit that the corresponding component of the superannuation interest bears to the value of the superannuation interest; and
(ii)
the tax free component and taxable component of the second and each subsequent superannuation benefit paid from the superannuation interest identified in subclause 3(b) is determined in accordance with the method statements set out in subclause 3(e).

(b)
For the purposes of subclause 3(a), the superannuation interest is the superannuation interest supporting a pension specified in clause 4. For the purposes of this clause, assume that the pension is a superannuation income stream.
(c)
For the purposes of subclause 3(a)(i), determine the value of the superannuation interest and the amount of the tax free component and the taxable component of the interest, when the relevant pension commenced.
(d)
For the purposes of subclause 3(a)(ii), determine the value of the superannuation interest from which each pension payment is made at the time just before each successive pension payment is made.
(e)
For the purposes of subclause 3(a)(ii):
Method statement for the second pension payment:
Step 1. Determine the amount of the tax free component of the superannuation interest as at just before the time the second superannuation benefit is paid from the interest as being equal to:

(the tax free component proportion determined under subclause 3(a)(i) multiplied by the value of the interest determined under subclause 3(d)) minus the tax free component amount of the first superannuation benefit determined under subclause 3(a)(i).
Step 2. Divide the tax free component amount determined in Step 1 by the value of the interest determined under subclause 3(d) to determine the tax free component proportion of the interest.
Step 3. The tax free component of the second superannuation benefit is equal to the amount of the benefit multiplied by the proportion determined in Step 2. The taxable component of the benefit is equal to the amount of the payment minus the amount of the tax free component of the benefit.
Method statement for the each subsequent payment:
Step 1. Determine the amount of the tax free component of the superannuation interest as at just before the time the second superannuation benefit is paid from the interest as being equal to:

The amount of the tax free component of the interest determined at the time just before the previous superannuation benefit is paid from the interest less the tax free component amount of the previous superannuation benefit.
Step 2. Divide the tax free component amount determined in Step 1 by the value of the interest determined under subclause 3(d) to determine the tax free component of the interest.
Step 3. The tax free component of each subsequent superannuation benefit is equal to the amount of the benefit multiplied by the proportion determined in Step 2. The taxable component of the benefit is equal to the amount of the payment minus the amount of the tax free component of the benefit.
(f)
For the avoidance of doubt, the tax free component and taxable component amounts determined in accordance with the alternative methods set out in subclause 3(a)(i) and 3(a)(ii) are subject to any modification to the tax free component and taxable component that may arise due to the application of section 307-145 or section 307-150 of the Income Tax Assessment Act 1997.

4. Determination

This instrument applies to:

(a)
superannuation benefits paid on or after 1 July 2021 that are superannuation lump sums paid to an individual as a pension in accordance with section 31(1) or section 32(1) of the Defence Force Retirement and Death Benefits Act 1973 (DFRDB Act) that commenced on or after 20 September 2007 but before 1 July 2021;
(b)
superannuation benefits paid on or after 1 July 2021 that are superannuation lump sums paid to an individual (reversionary beneficiary) as a pension in accordance with subsection 39(1), subsection 42(1) or subsection 43(1) of the DFRDB Act where the primary beneficiary received superannuation benefits as a pension in accordance with section 31 that commenced on or after 20 September 2007 but before 1 July 2021;
(c)
superannuation benefits paid on or after 1 July 2021 that are superannuation lump sums paid to an individual (non-reversionary beneficiary) as a pension in accordance with subsection 43A(1) or 43A(2) or subsection 44(2) of the DFRDB Act that commenced on or after 20 September 2007 but before 1 July 2021;
(d)
superannuation benefits paid on or after 1 July 2021 that are superannuation lump sums paid to an individual as a pension in accordance with rule 27(1) or rule 28(1) of the Military Superannuation and Benefits Rules set out in the Schedule to the Trust Deed as referred to in section 4 of the Military Superannuation and Benefits Act 1991 (MSBS Rules) that commenced on or after 20 September 2007 but before 1 July 2021;
(e)
superannuation benefits paid on or after 1 July 2021 that are superannuation lump sums paid to an individual (reversionary beneficiary) as a pension in accordance with rule 42(1), rule 42(3), or rule 46(1) of the MSBS Rules where the primary beneficiary received superannuation benefits as a pension in accordance with rule 27(1) or rule 28(1) that commenced on or after 20 September 2007 but before 1 July 2021.

5. Definitions

All terms take their meaning from the Income Tax Assessment Act 1997, the DFRDB Act and the Military Superannuation and Benefits Act 1991.



Draft issued 19 May 2021

Louise Clarke
Deputy Commissioner of Taxation
Policy, Analysis and Legislation
Law Design and Practice


Related Explanatory Statements:

MS 2021/D2 - Explanatory Statement