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Edited version of private ruling
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Ruling
Subject: Deduction for future liability to pay death or disability benefits
Question 1
Can the trustee of the superannuation fund choose not to claim the exemption under either section 295-385 or section 295-390 of the ITAA 1997?
Answer
No.
Question 2
If the trustee can make a choice not to claim the exemption under either section 295-385 or section 295-390 of the ITAA 1997, is the trustee entitled to claim a deduction under section 295-470?
Answer
Not applicable.
Question 3
Can the deduction under section 295-470 of the ITAA 1997 give rise to a carried forward loss for recoupment against future taxable income of the superannuation fund?
Answer
No.
Question 4
Is the trustee permitted to calculate capital losses and carry forward those capital losses for recoupment against future taxable capital gains of the superannuation fund?
Answer
Not applicable.
This ruling applies for the following period:
1 July 2008 to 30 June 2009
The scheme commenced on:
1 July 2008
Relevant facts:
The Superannuation Fund (the Fund) has one member (the member).
The member's employment terminated because of a disability.
The Fund has been paying the member a pension per month as per the Fund's Trust Deed.
The current pension assets of the Fund are segregated.
No premiums were paid in respect of insurance cover for death or disability benefits and the Fund is not self-insuring for death or disability benefits.
The only benefits available in the event of death or disability is the member's account balance.
The Fund has incurred a capital loss on its investments in the 2008-09 income year.
Relevant legislative provisions:
Income Tax Assessment Act 1997 section 295-385
Income Tax Assessment Act 1997 subsection 295-385(1)
Income Tax Assessment Act 1997 subsection 295-385(3)
Income Tax Assessment Act 1997 section 295-460
Income Tax Assessment Act 1997 section 295-465
Income Tax Assessment Act 1997 subsection 295-465(4)
Income Tax Assessment Act 1997 section 295-470
Income Tax Assessment Act 1997 subsection 295-470(2)
Reasons for decision
Summary
The Superannuation Fund (the Fund) can not claim a deduction for the future liability to pay death and disability benefits instead of a deduction in respect of exempt current pension income as it has not paid any insurance premiums nor is it self insuring.
The deduction in respect of exempt current pension income is to be claimed under Item K in its tax return for the 2008-09 income year.
As a consequence, the deduction in respect of exempt current pension income will not result in a loss for the 2009-10 income year.
Detailed reasoning
A deduction is allowable under section 295-465 of the Income Tax Assessment Act 1997 (ITAA 1997) for insurance premiums paid by a complying superannuation fund to provide certain death and disability benefits to members.
These benefits are outlined in section 295-460 of the ITAA 1997 and include a disability superannuation benefit. The fund member is currently receiving a disability superannuation benefit from the Fund in the form of a pension.
Under section 295-470 of the ITAA 1997 the trustee of a complying fund can choose to claim a deduction as an alternative to the one claimable under section 295-465. This alternative deduction is calculated by a formula under subsection 295-470(2).
A complying fund can only claim the deduction under 295-470 of the ITAA 1997 if the trustee has chosen in accordance with subsection 295-465(4) not to claim any insurance premium deductions under section 295-465.
However, as the Fund has no insurance and hence pays no insurance premiums, there are no premiums to be claimed as a deduction.
You have asked whether the fund member's pension or part thereof can be treated as a premium for the purposes of section 295-470 of the ITAA 1997.
As the payment of the pension is the disability benefit, it can not be a premium for insuring for the death and disability benefit.
The fund must either have an insurance policy or have set aside monies in reserve if it is self insuring. As this is not the case, no amount can be claimed as a deduction section 295-465 of the ITAA 1997. Consequently, the choice under section 295-470 cannot be made.
Therefore there is no deduction to be claimed at Item F in the Fund's income tax return for the 2009-10 income year and, thus, no loss in this income year.
Under subsection 295-385(1) of the ITAA 1997, a complying superannuation fund is exempt from tax on income from assets set aside to meet current pension liabilities. That is, income from segregated current pension assets.
A segregated current pension asset is defined in subsection 295-385(3) of the ITAA 1997 as being solely to enable the fund to pay the current pensions. The Fund has segregated current pension assets.
Therefore the deduction is more appropriately claimed at Item K in the Fund's income tax return for the 2009-10 income year.