ATO Interpretative Decision

ATO ID 2001/768 (Withdrawn)

Superannuation

Reasonable benefit limits (RBLs) - Qualifying portions
FOI status: may be released
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Should the benefit received by the taxpayer be determined against the lump sum RBL or the pension RBL?

Decision

The benefit should be determined against the lump sum RBL.

Facts

The taxpayer has received a number of benefits which have been reported to the Australian Taxation Office (ATO) for RBL purposes.

When a person receives a benefit the ATO is required to determine which RBL applies in order to determine whether the benefit exceeds the RBL.

One of the benefits has been determined against the lump sum RBL and now contains an excessive component.

The taxpayer is over 55 years old.

Reasons for Decision

The lump sum RBL does not necessarily apply to lump sums and the pension RBL does not necessarily apply to pensions.

Section 140ZF of the Income Tax Assessment Act 1936 (ITAA 1936) provides certain rules to determine whether a benefit is measured against the lump sum RBL or the pension RBL. Terms in 'bold' type are defined at the end of this decision.

If a taxpayer is 55 or over (on the date of the current benefit) and has taken:

•
more than 50% of the value of his or her pension RBL as pension RBL benefits (not including the current benefit) or
•
more than 50% of the lesser of the total of all his or her benefits and the value of his or her pension RBL as pension RBL benefits the pension RBL applies to the current benefit.

The formulae below determine which RBL applies to a benefit:

1.
Where the current benefit is:
an eligible termination payment (ETP), or
a pension that does not meet the pension RBL standards, or
an annuity that does not meet the pension RBL standards;
If
A > (50% of B)
or
(C + D) <= the lesser of [50% of (A + C + D)] or (50% of B)
the pension RBL will apply to the benefit. If this is not the case, the lump sum RBL will apply.
2.
Where the current benefit is:
a pension that does meet the pension RBL standards, or
an annuity that does meet the pension RBL standards;
If
A > (50% of B)
or
(A + D) >= the lesser of [50% of (A + C + D)] or (50% of B)
the pension RBL will apply to the benefit. If this is not the case, the lump sum RBL will apply.

Where

A. =
sum of qualifying portions of previous pension RBL benefits
B. =
pension RBL
C. =
sum of qualifying portions of previous lump sum RBL benefits
D. =
capital amount of current benefit

The same calculations are used whether transitional RBLs, special transitional RBLs or flat dollar RBLs apply.

DEFINITION OF TERMS

Pension RBL benefits

Pension RBL benefits are pensions and annuities that meet the pension RBL standards.

Lump sum RBL benefits

Lump sum RBL benefits are ETPs and pensions and annuities that do not meet the pension RBL standards.

Pension RBL standards

Pension RBL standards are also known as the pension and annuity standards and are set out in the ATO factsheet 'Reasonable Benefit Limits Pension RBL Standards'. The pension RBL standards require, among other things, that the pension or annuity is payable for life or life expectancy. Allocated pensions do not meet the pension RBL standards.

Capital amount

The capital amount applies only to the current benefit.

The capital amount of an ETP is 100% of the pre-July 83 component, 100% of the post-June 83 component and 100% of the CGT exempt component.

The capital amount of a superannuation pension is the pension capital value. Refer to the ATO factsheets 'Reasonable Benefit Limits Valuation of Pensions Payable for Life' and 'Valuation of Pensions Not Payable for Life' and Taxation Determinations TD 2000/28 and TD 2000/29. The capital value of an allocated pension (or other purchased pension) can also be calculated by applying the rules for ETPs noted above to the components of the ETP or notional ETP used to purchase the pension.

The capital amount of an annuity is calculated by applying the rules for ETPs noted above to the components of the ETP or notional ETP used to purchase the annuity.

Qualifying portion

The qualifying portion is the capital amount of a previously received benefit minus any excessive components or amounts, indexed to the date of the current benefit. Refer to ATO factsheet 'Reasonable Benefit Limits Indexation of Benefits' for further information.

Date of decision:  31 May 2001

Legislative References:
Income Tax Assessment Act 1936
   section 140ZA
   section 140ZF
   section 140ZG

Keywords
Reasonable benefit limits
Qualifying portion

Business Line:  Superannuation

Date of publication:  6 December 2001

ISSN: 1445-2782

history
  Date: Version:
  31 May 2001 Original statement
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