ATO Interpretative Decision

ATO ID 2003/602 (Withdrawn)

Superannuation

• This ATO ID is withdrawn from the database because it contains a view in respect of a provision of the Income Tax Assessment Act 1936 that doesn't apply to superannuation fund payments after the 2006-2007 income year. Despite its withdrawal from the database, this ATO Interpretative Decision continues to be a precedential view in respect of decisions for income years up to, and including, the 2006-2007 income year.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the payment from the superannuation fund, consideration of a capital nature for, or in respect of, personal injury to the member and therefore come within paragraph (n) of the definition of 'eligible termination payment' (ETP) in subsection 27A(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

No, the payment from the superannuation fund is not excluded by paragraph (n) of the definition of 'eligible termination payment' in subsection 27A(1) of the ITAA 1936.

Facts

The member terminated their employment as a result of a personal injury.

A payment from the superannuation fund was made to the member on invalidity grounds under the governing rules of the fund.

Reasons for Decision

Paragraph (b) of the definition of "eligible termination payment" in subsection 27A(1) of the ITAA 1936 includes as an ETP:

'any payment made from a superannuation fund in respect of the taxpayer by reason that the taxpayer is or was a member of the fund, not being a payment:

(i)

that is income of the taxpayer

(ii)

to which paragraph (d), (da), (e) or (ga) applies; or

(iii)

that is a benefit to which subsection 26AF(1), 26AFA(1) or 26AFB(2) or (3) applies,

reduced by any amount that has been or will be included in the assessable income of the taxpayer under subsection 26AF(2), 26AFA(3) or 26AFB(5) in respect of the transfer by the taxpayer of a right to receive the payment or any part of the payment;'

However, paragraph (n) of the definition of "eligible termination payment" in subsection 27A(1) of the ITAA 1936 excludes the following amounts from being ETPs:

'consideration of a capital nature for, or in respect of, personal injury to the taxpayer, to the extent to which the amount or value of the consideration is, in the opinion of the Commissioner, reasonable having regard to the nature of the personal injury and its likely effect on the capacity of the taxpayer to derive income from personal exertion;'

If a payment is an ETP, a further concession is available if the payment is considered to be an invalidity payment. The amount of an invalidity payment is determined in accordance with section 27G of the ITAA 1936.

The issue of whether a payment in these circumstances is an ETP was recently examined by the High Court in FC of T v Scully [2000] HCA 6. By majority (Kirby J dissenting) the High Court has held that the payment from a superannuation fund for total and permanent disability was an ETP. The following relevant statements were made:

'In our opinion, the words "in respect of" are principally concerned with payments such as those for loss of earnings consequent on personal injury. That that is the effect of that phrase appears from the words of par (n) itself - the consideration must be "reasonable having regard to the nature of the personal injury and its likely effect on the capacity of the taxpayer to derive income from personal exertion" (emphasis added). That meaning is also confirmed by the Explanatory Memorandum which stated that: "[p]ayments being excluded from the definition by paragraphs (k), (m) and (n) are sums paid as loans or under covenants in restraint of trade or by way of compensation for loss of income through personal injury." In their context, the words "in respect of" do not cut down the requirement that the payment must be a payment to compensate for the injury.

In our opinion, the payment in this case cannot be characterised as "consideration ... in respect of, personal injury". The fact that the payment is not calculated by reference to the nature and extent of the injury or likely loss to the respondent and the fact that the other benefits are similar to that for total and permanent disablement point inevitable to the conclusion that the payment was "consideration ... for, or in respect of" the respondent's termination of employment and her rights under the Trust Deed and was not "consideration ... for, or in respect of" her injury.'

The payment was actually paid under the terms of the superannuation trust deed and was the taxpayer's entitlement in the fund at the time the employment was terminated. No consideration was given to the injury itself in determining the level of the payment.

The payment made to the taxpayer from the superannuation fund was an ETP and not excluded from taxation by reason that the payment was 'of a capital nature for, or in respect of, personal injury'.

Legislative References:
Income Tax Assessment Act 1936
   section 27A
   section 27G

Case References:
FC of T v Scully
   [2000] HCA 6
   43 ATR 718

Keywords
ETP post June 1994 invalidity component
Sickness & invalidity payments
Invalidity & disablement

Business Line:  Superannuation

Date of publication:  18 July 2003

ISSN: 1445-2782