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Edited version of private ruling

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Ruling

Subject: Superannuation lump sum

Questions

1. Is any part of the lump sum payment from a superannuation fund assessable to you under section 301-20(1) of the Income Tax Assessment Act 1997 (ITAA 1997) in the 2009-10 income year?

    Answer: Yes.

2. Are you entitled to a tax offset under subsection 301-20(2) of the ITAA 1997 for a taxable component of a payment from a superannuation fund?

    Answer: Yes.

This ruling applies for the following period

2009-10 income year.

The scheme commenced on

1 July 2009

Relevant facts

You are over preservation age and under 60.

You were employed until during the second quarter of the 2009-10 income year.

You were a member of a superannuation fund (Fund A) during your employment with the employer. The fund is a constitutionally protected fund.

In the month following your cessation of employment you rolled over your benefits in Fund A to another superannuation fund (Fund B), a complying superannuation fund.

At the time of the roll-over the untaxed element of the taxable component of the rolled over amount was included in the assessable income of Fund B.

During the third quarter of the 2009-10 income year you withdrew a lump sum from Fund B. This amount consisted of:

    · a tax-free component; and

    · a taxed element of a taxable component.

You were over preservation age and under age 60 at the time the withdrawal was made.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 301-15.

Income Tax Assessment Act 1997 Subsection 301-20(1).

Income Tax Assessment Act 1997 Subsection 301-20(2).

Income Tax Assessment Act 1997 Subsection 301-20(3).

Income Tax Assessment Act 1997 Section 307-345.

Income Tax Assessment Act 1997 Subsection 307-345(2).

Reasons for decision

Summary

As you are over preservation age and under age 60 when you received the superannuation lump sum, the taxed element of the taxable component is included in your assessable income for the 2009-10 income year.

You will be entitled to a tax offset that will ensure that the rate of tax on the taxed element of the taxable component is 0%.

Detailed reasoning

Taxation of a lump sum superannuation benefit

From 1 July 2007 a lump sum superannuation benefit will generally comprise:

    · a tax free component; and

    · a taxable component which may include:

      o an element taxed in the fund; and/or

      o an element untaxed in the fund.

Tax-free component

The tax-free component of a benefit paid to a member of a superannuation fund who is over the preservation age but under age 60 is not assessable income and not exempt income under section 301-15 of the Income Tax Assessment Act 1997 (ITAA 1997).

For a person born before 1 July 1960 their preservation age is age 55.

Included in the tax-free component are member contributions for which no tax deduction has been claimed.

Taxable component

The taxable component of a lump sum superannuation benefit is the amount remaining after reducing the benefit by the tax free component.

For most superannuation funds the taxable component will usually consist solely of an element taxed in the fund. The exception to this are constitutionally protected funds (CPFs) and certain Commonwealth government superannuation funds.

A superannuation fund is a CPF if its assets are owned by a state, rather than held in trust. As the Australian constitution limits the Commonwealth's taxing power, income derived by these funds is exempt from tax. Consequently, a person's superannuation benefits in a CPF will, with the exception of the tax-free component, be an element untaxed in the fund.

Fund A is a CPF. However, your benefits in Fund A were rolled over to Fund B, which is not a CPF. The untaxed element of the taxable component of the rolled over amount was included in the assessable income of Fund B and was subject to tax.

As Fund B is not a CPF, the taxable component of any benefits paid from Fund B will consist solely of an element taxed in the fund.

The tax treatment of the taxed element depends on the age of the taxpayer at the time of receiving the payment and the form of the payment (that is, lump sum or income stream).

In your case, you were over preservation age but under age 60 when you received the lump sum superannuation benefit. Consequently, the taxable component of the lump sum is included in your assessable income for the 2009-10 income year (subsection 301-20(1) of the ITAA 1997).

However, you are entitled to a tax offset that ensure that the rate of tax on the taxable component up to your low rate cap amount does not exceed 0% (subsections 301-20(2) and 301-20(3) of the ITAA 1997).

The low rate cap amount is under section 307-345 of the ITAA 1997 and for the 2009-10 income year is $150,000. It is indexed annually in accordance with average weekly ordinary time earnings in $5,000 increments.

The low rate cap amount is reduced where other superannuation benefits are received by a taxpayer in the same income year (subsection 307-345(2) of the ITAA 1997).