Edited version of private advice

Authorisation Number: 1051844934877

Date of advice: 2 June 2021

Ruling

Subject: Superannuation lump sum benefit

Question

Will the payment from an Australian superannuation fund (the Fund) to you be tax-free under section 303-10 of the Income Tax Assessment Act 1997 because a terminal medical condition exists in relation to you?

Answer

Yes

This ruling applies for the following periods:

Income year ended 30 June 20XX

Income year ended 30 June 20XX

Income year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were diagnosed with a medical condition with a low survival rate.

You provided a copy of a medical certificate from a specialist in a field related to your condition, confirming that you are suffering from an illness that gives you an expected of life of a further XX years.

You provided a copy of a medical certificate from your general practitioner which confirms that you suffer from an illness and have an expected length of life of a further XX years.

You intend to withdraw your superannuation from the Fund, a complying self-managed superannuation fund, within 24 months of certification of your illness.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 301-1

Income Tax Assessment Act 1997 section 307-5

Income Tax Assessment Act 1997 section 307-120.

Income Tax Assessment Act 1997 section 307-145.

Income Tax Assessment Act 1997 section 995-1.

Reasons for decision

Summary

The superannuation lump sum you expect to receive from the Fund will meet the requirements under section 303-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provided you receive it within 24 months of the certification of your illness.

Detailed reasoning

Section 303-10 of the ITAA 1997 sets out the tax treatment of a superannuation lump sum member benefit paid to a member with a terminal medical condition. Section 303-10 of the ITAA 1997states:

(1) This section applies to a *superannuation member benefit that:

(a) is a *superannuation lump sum; and

(b) is:

(i) paid from a *complying superannuation plan; or

(ii) a *superannuation guarantee payment, a *small superannuation account payment, an *unclaimed money payment, a *superannuation co-contribution benefit payment or a *superannuation annuity payment.

(2) The lump sum is not assessable income and is not exempt income if a terminal medical condition exists in relation to you when you receive the lump sum or within 90 days after you receive it.

In accordance with subsection 307-5(1) of the ITAA 1997, a superannuation member benefit is a payment to a person from a superannuation fund because the person is a fund member.

A superannuation lump sum is defined in section 307-65 of the ITAA 1997 as a superannuation benefit that is not a superannuation income stream benefit.

Subsection 995-1(1) of the ITAA 1997 defines 'terminal medical condition' to have the meaning given by the regulations.

In accordance with regulation 303-10.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997), a terminal medical condition exists in relation to a person at a particular time if:

(a) two registered medical practitioners have certified, jointly or separately, that the person suffers from an illness, or has incurred an injury, that is likely to result in the death of the person within a period (the certification period) that ends not more than 24 months after the date of the certification;

(b) at least one of the registered medical practitioners is a specialist practising in an area related to the illness or injury suffered by the person;

(c) for each of the certificates, the certification period has not ended.

In this case, you intend to apply for a lump sum benefit from a superannuation fund because you are a member of the fund.

The Fund you intend to withdraw the benefit from is a complying superannuation fund and two medical practitioners (one of whom is a specialist practising in the area related to your illness) have certified that you suffer from an illness that is likely to result in your death within XX years. You intend to withdraw these amounts within 24 months of the dates of the certification of your illness.

Please note that according to subsection 303-10(2) of the ITAA 1997, the terminal medical condition under regulation 303-10.01 of the ITAR 1997 only needs to exist 'when you receive the lump sum or within 90 days after you receive it' in order for the lump sum to be tax-free. In other words, whether the lump sum will be tax-free or not depends entirely on whether the certification requirements have been properly met during the timeframe. Other factors, such as the actual date of death, or if the illness actually results in death, are not relevant considerations for determining the tax treatment of the lump sum.