ATO Interpretative Decision
ATO ID 2002/721 (Withdrawn)
Superannuation
Annuity & superannuation pensions: Undeducted purchase priceFOI status: may be released
-
This ATO ID is a simple restatement of the law and does not contain an interpretative decision.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
What proportion of the taxpayer's contributions in relation to the taxpayer's overseas pension, is to be allocated between the pension and lump sum benefit for calculating the 'deductible amount' under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
The proportion of the taxpayer's contributions in relation to the taxpayer's overseas pension is calculated based on the appropriate valuation factor as per the Taxation Ruling IT2620.
Reasons for Decision
Under section 27H of the ITAA 1936 an annuity is included in the assessable income of a taxpayer. The amount that is assessable is reduced by the 'deductible amount'. The 'deductible amount' represents the 'undeducted purchase price' of the pension reduced by its residual capital value, if any, and apportioned over the term for which the pension will be paid. This calculation is based on the formula in subsection 27H(2) of the ITAA 1936. The 'undeducted purchase price' (definition in subsection 27A(1) of the ITAA 1936) for a non-rebateable pension is generally the amount of the 'purchase price' paid that has not been allowed as a deduction. The 'purchase price' generally means contributions made by any person to obtain benefits consisting only of the pension (definition in subsection 27A(1) of the ITAA 1936).
Where a superannuation benefit, therefore, consists of a lump sum and a pension, the 'purchase price' in relation to the pension has to be ascertained. Taxation Ruling IT 2272 provides a basis for this apportionment. The apportionment is based on the present value of the pension entitlement at the time when the lump sum payment is received.
In this particular case, the amount of the lump sum was provided, as well as the annual value of the pension on commencement. However, the taxpayer was unable to ascertain from the fund the present value of the pension entitlement. Taxation Ruling IT 2620 provides for a calculation of the present value using a 'pension valuation factor' (see appendix to Taxation Ruling IT 2620).
Using the appropriate table and based on the information provided, a valuation factor was determined. Using this factor, the present value of the pension was determined and this was used to apportion the 'purchase price' between the lump sum and the pension. This allowed a calculation of the 'undeducted purchase price' to be made and consequently the annual 'deductible amount' available under subsection 27H(2) of the ITAA 1936.
Date of decision: 27 August 1998
Legislative References:
Income Tax Assessment Act 1936
subsection 27A(1)
subsection 27H(2)
subsection 27H(3)
Related Public Rulings (including Determinations)
Taxation Ruling IT 2272
Taxation Ruling IT 2620
Taxation Determination TD 96/33
Other References:
Previously released as CDS10197
Keywords
Annuities & superannuation pensions
Annuity & superannuation pension purchase price
Lump sum superannuation payments
Non resident superannuation funds
Undeducted purchase price
ISSN: 1445-2782
| Date: | Version: | |
| 27 August 1998 | Original statement | |
| You are here | 16 April 2010 | Archived |