Edited version of private ruling

Authorisation Number: 1011560232472

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Ruling

Subject: Deductible amount of Undeducted Purchase Price

ISSUE 1

Question

Are you entitled to an annual and part year deductible amount in respect of your Australian pension?

RULING:

Yes, you are entitled to an annual deductible amount

Yes, you are entitled to a part year deductible amount.

ISSUE 2:

Question

Are you entitled to a superannuation pension tax offset?

RULING:

Are you entitled to a superannuation pension tax offset?

No.

YEAR(S) OF INCOME OR PERIOD(S) TO WHICH THIS RULING APPLIES:

2001-02 income year

2002-03 income year

2003-04 income year

2004-05 income year

2005-06 income year

2006-07 income year

COMMENCEMENT DATE OF SCHEME:

1 July 2001

THE SCHEME THAT IS THE SUBJECT OF THE RULING:

You receive a pension from a complying superannuation fund.

Your assessable income includes your pension income.

Your pension is paid by an source within Australia.

The entire pension is payable to you.

The pension is payable for life, and on your death reverts to your spouse.

Tax Office records indicate that you have pre July 1983 excess amounts.

The residual capital value of the pension is nil.

Your pension was paid for part year in the 2001-02 income year.

The superannuation fund is an untaxed superannuation fund.

The rebatable proportion of the pension is 1 as determined from Tax Office records.

RELEVANT PROVISIONS

Income Tax Assessment Act 1936 Subsection 27A(1)

Income Tax Assessment Act 1936 Section 27H

Income Tax Assessment Act 1936 Subsection 27H(2)

Income Tax Assessment Act 1936 Subsection 27H(3)

Income Tax Assessment Act 1936 Subsection 27H(3A)

Income Tax Assessment Act 1936 Subsection 27H(4)

Income Tax Regulations 1936 Regulation 9

Reasons for decision

Please note that all references to "pension" cover both pensions and annuities.

Issue 1:

Section 27H of the Income Tax Assessment Act 1936 (ITAA 1936) operates to include in assessable income the amount of any pension or annuity (pension) derived by a taxpayer during a year of income reduced by the deductible amount.

The deductible amount is deemed to be a return of part of your contribution towards the purchase of the pension.

The calculation of the deductible amount is based on the undeducted purchase price (UPP) of your pension.

The UPP is the amount you contributed towards the purchase price of your pension for which you did not claim, and were not eligible to claim, a tax deduction. Contributions made by an employer or by another person under an agreement to which the employer was a party, cannot form part of the UPP of the pension.

Under subsection 27H(2) of the ITAA 1936, subject to subsection 27H(3) or 27H(3A) of the ITAA 1936, the annual deductible amount of a superannuation pension is ascertained in accordance with the formula:

where:

A = is the relevant share of the pension payable to the taxpayer in relation to the year

of income (if all of the pension is payable to the taxpayer, A = 1)

B = is the amount of the UPP of the pension as defined in section 27A(1) of the ITAA 1936

C = is the residual capital value, and

D = is the relevant number in relation to the pension.

Under subsection 27H(4) of the ITAA 1936, when a pension is payable during the lifetime of a person, the 'life expectation factor' is to be used as the relevant number.

Regulation 9 of the Income Tax Regulations 1936 states that for the purposes of the definition of life expectation factor in subsection 27H(4) of the ITAA 1936, the Australian Life Tables published by the Australian Government Actuary are to be used.

In Taxation Determination TD 2006/72 the Commissioner states, in paragraph 1, that the relevant number used to calculate the deductible amount of a superannuation pension or annuity that is payable to a person (the original pensioner) for life and on the death of that person is payable to another person for their life (the reversionary pensioner) will be the greater of the life expectancies of the original and reversionary pensioners.

The factors for determining the life expectancy are:

(1) the date the pension first become payable

(2) your age when the pension commenced, and

(3) your spouse's age when the pension commenced.

Paragraph 2 of TD 2006/17 states where the pension or annuity commenced or finished during an income year, the deductible amount should be determined under section 27H(3) of the ITAA 1936. The deductible amount in these circumstances is the amount that would be calculated under subsection 27H(2) of the ITAA 1936 apportioned in accordance with the number of the days the pension was payable to you in that year.

Please note that from 1 July 2007, pensions will be subject to the Better Superannuation legislation. Your annual deductible amount will be your tax free component.

From 1 July 2007 your superannuation fund should provide you with details of your tax free component. You can also find further information on Better Super on the ATO website.

Issue 2:

A taxpayer is entitled to a superannuation pension tax rebate (offset) under subsection 159SM(1) of the ITAA 1936 against the superannuation pension income included in their assessable income in an income year. However, under subsections 159SM(2) and 159SM(3) of the ITAA 1936, the taxpayer is not entitled to a rebate if the superannuation fund is not a taxed fund in the year of income, nor if it is a constitutionally protected fund on the first day of the income period.

In addition , under subsection 159SJ(1) of the ITAA 1936, to be eligible to claim the superannuation pension tax offset in relation to an income year, the taxpayer is required to be aged 55 years or over during the whole or part of the income year unless they are receiving a death or disability annuity/pension. In that case, they will be eligible regardless of age.

IMPORTANT INFORMATION TO NOTE

Assessment for previous years

Income tax returns may be amended within two years from the date upon which the Commissioner gives notice of the assessment to the individual (for assessments for the 2004-05 and later income years) or within four years from the date upon which the tax became due and payable under the assessment (for assessments for income years prior to the 2004-05 income year).

You may choose to rely on this private ruling. As you may choose not to rely on this private ruling, we will not amend the assessment for the years covered by the ruling or the assessments for previous income years automatically.

If you choose to rely on this private ruling, the assessment covered by the ruling may need to be amended to implement the decision. Should you request an amendment to the assessment covered by the ruling, the Tax Office will then process an amendment to give effect to the ruling decision (unless we are prevented from doing so by a time limit imposed by the law).

In regards to assessments that fall outside the two/four year period, you will need to lodge an objection request and a request for an extension of time to lodge an objection form. Please complete the attached form and forward to the above address.

If you choose to rely on this ruling, we must apply the law to you in the way set out in the ruling (or in a way that is more favourable for you if we are satisfied that the ruling is incorrect and disadvantages you, and if we are not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the current law applies to you.

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