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Ruling

Subject: Superannuation contributions

Questions

1. Is an amount paid from a superannuation fund (the Fund) to a member of the Fund a superannuation benefit for the purposes of Income Tax Assessment Act 1997 (ITAA 1997)?

2. Is the subsequent repayment of the same amount to the Fund by the member a contribution for the purposes of the ITAA 1997?

Answers

1. Yes

2. Yes

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commences on:

During the year ended 30 June 2011

Relevant facts and circumstances

The Fund is a regulated self managed superannuation fund.

During the 2010-11 income year, a member (the Member) requested that the trustees of the Fund pay them a lump sum superannuation benefit. The Member was over 55 years of age and, after a year of illness, was considering retiring.

A few days later, the trustees of the Fund paid the Member a lump sum superannuation benefit as requested.

Subsequently, the Member became aware that the superannuation benefit paid by the Fund would count as income for government agency purposes and may affect their entitlement to certain government agency benefits.

Consequently, the Member transferred to the Fund an amount equal to the amount received from the Fund as a repayment of benefits received.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 307-5.

Income Tax Assessment Act 1997 Subsection 307-5(1).

Income Tax Assessment Act 1997 Subsection 307-15(2).

Superannuation Industry (Supervision) Ac 1993.

Superannuation Industry (Supervision) Regulations 1997 Subregulation 5.01(1).

Superannuation Industry (Supervision) Regulations 1997 Subregulation 5.01(2).

Superannuation Industry (Supervision) Regulations 1997 Subregulation 1.03(1).

Reasons for decision

Payment from the Fund to the Member

Section 307-5 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out payments that are/are not superannuation benefits.

Item 1 in the table contained in subsection 307-5(1) of the ITAA 1997 lists various types of superannuation benefits and, as far as relevant, provides that a payment made by a superannuation fund to a person because the person is a superannuation fund member is a superannuation benefit.

In accordance with subsection 307-15(2) of the ITAA 1997, a payment is made to a person if it is made:

(a) for that person's benefit; or

(b) to another person or to an entity at the person's request.

In this case, on the Member's request, the trustees paid the lump sum to the Member. That is, the payment was made from the Fund for the benefit of the Member.

The Member withdrew their benefit voluntarily; they were not under any legal obligation to do so, nor did they believe that they were under any legal obligation to withdraw the benefits. The trustees also, were not under any obligations (nor did they believe they were under obligation) to pay the benefit other than by reason that the Member requested the trustees do so and that they satisfied a condition of release in accordance with the requirements of the Superannuation Industry (Supervision) Ac 1993.

It is our view that, in this case, the Member intended to withdraw the benefit from the Fund and gave effect to that intention by withdrawing a lump sum superannuation benefit. The Member was the intended recipient of the amount received and they obtained the expected superannuation benefit.

The Member was not mistaken in the sense that they thought they were required to withdraw the benefit; nor are they the recipient of an amount greater than the trustee intended to pay, for example, because of a clerical, transcription or arithmetic error.

Therefore, the lump sum payment from the Fund to the Member is a lump sum superannuation benefit for the purposes of the ITAA 1997.

Repayment by the Member to the Fund

The ITAA 1997 does not define the term 'contribution'. Therefore it is necessary to ascertain the meaning of a 'contribution' to a superannuation fund having regard to the context and underlying purpose of the legislative provisions in which the term appears.

The Commissioner of Taxation (the Commissioner) sets out his view on the meaning of 'contribution' in Taxation Ruling TR 2010/1. The Commissioner considers that in the superannuation context, a contribution is anything of value that increases the capital of a superannuation fund provided by a person whose purpose is to benefit one or more particular members of the fund or all of the members in general.

A superannuation fund's capital is most commonly increased by transferring funds to the superannuation provider and, as a general rule; the contribution will be made when the funds are received by the superannuation provider.

In this case, the transfer from the Member to the Fund was made to benefit the Member; therefore, the transfer to the Fund is a contribution for the purposes of the ITAA 1997.

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