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Ruling

Subject: Superannuation income stream tax offset

Question

Is your client entitled to claim a tax offset in respect of the taxed element of a taxable component of a superannuation income stream benefit under subsection 301-40(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commences on:

1 July 2011

Relevant facts and circumstances

Your client is under preservation age and was medically discharged from an employer. Your client had sustained an injury while your client was at work.

Your client receives a pension from a complying superannuation fund.

The superannuation fund is a taxed superannuation fund for the purposes of the 15% tax offset.

Your client's pension is paid by the trustee of the superannuation fund.

The pension commenced several years ago.

Your client is in receipt of a death or disability pension.

The trustee of the fund has advised that your client was eligible to receive a tax offset of up to 15% on the pension as it is paid from a taxed fund.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 301-25.

Income Tax Assessment Act 1997 Section 301-40.

Income Tax Assessment Act 1997 Subsection 301-40(1).

Income Tax Assessment Act 1997 Subsection 301-40(2).

Income Tax Assessment Act 1997 Subsection 995-1(1).

Taxation Administration Act 1953 Section 359-10 of Schedule 1.

Taxation Administration Act 1953 Section 359-25 of Schedule 1.

Taxation Administration Act 1953 Subsection 359-25(1) of Schedule 1.

Taxation Administration Act 1953 Subsection 359-25(2) of Schedule 1.

Taxation Administration Act 1953 Subsection 359-25(3) of Schedule 1.

Taxation Administration Act 1953 Subsection 359-25(4) of Schedule 1.

Reasons for decision

Summary

Your client is entitled to a tax offset in respect of the taxed element of a taxable component of a superannuation income stream benefit in each of the 2011-12, 2012-13 and 2013-14 income years.

The tax offset your client can receive is equal to 15% of the taxable component of the benefit received in each income year.

Detailed reasoning

From 1 July 2007 pension payments made to a member of a superannuation fund are called superannuation income stream benefits.

Subdivision 301-B of the Income Tax Assessment Act 1997 (ITAA 1997) applies to superannuation income stream benefits that are received from complying superannuation funds. In particular, section 301-40 of the ITAA 1997 governs the taxation treatment of superannuation income stream benefits where the recipient is under their preservation age.

Superannuation income streams received after 1 July 2007 where the recipient is aged under the preservation age

Subsection 301-40(1) of the ITAA 1997 states:

If you are under your preservation age when you receive a superannuation income stream benefit, the taxable component of the benefit is assessable income.

Your client receives a pension from a complying superannuation fund, which is also a taxed superannuation fund. The Trustee of the superannuation fund has advised that the pension is paid from a taxed fund. It is evident from the facts that your client is receiving a superannuation income stream benefit from this fund.

Your client's superannuation income stream benefit contains a taxed element of a taxable component. The tax treatment of the taxable component - taxed element depends on the age of the taxpayer.

Preservation age is the age at which retirees can access their superannuation benefits. This is 55 years of age for persons born before 1 July 1960. In this instance, your client will be under their preservation age in each of the 2011-12, 2012-13 and 2013-14 income years.

As your client is under the preservation age, the taxed element of the taxable component is included in full in your client's assessable income in accordance with subsection 301-40(1) of the ITAA 1997.

Tax offset for disability superannuation benefit

Subsection 301-40(2) of the ITAA 1997 states:

If the benefit is a superannuation income stream benefit and a disability superannuation benefit, you are entitled to a tax offset equal to 15% of the taxable component of the benefit.

Your client was medically discharged from an employer as your client had sustained an injury while they were at work.

Therefore it is accepted that the superannuation income stream benefit is a disability superannuation benefit within the meaning of subsection 995-1(1) of the ITAA 1997.

Because your client's superannuation income stream benefit is also a disability superannuation benefit, your client is entitled to a tax offset in accordance with subsection 301-40(2) of the ITAA 1997. As noted above, the tax offset is equal to 15% of the taxable component of the benefit.

The amount of tax offset your client can receive in each of the 2011-12, 2012-13 and 2013-14 income years is equal to 15% of the taxable component - taxed element of the benefit your client receives in each of these income years.