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Ruling

Subject: Lump sum superannuation payment and divorce

Question

Are you liable for tax on a superannuation lump sum you are required to pay to your former spouse pursuant to a court order made in prior to 28 December 2002 by the Family Court of Australia?

Advice/Answer

No.

This ruling applies for the following period

Year ending 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

Prior to 28 December 2002, by orders the Family Court of Australia ordered that you do all such acts and things necessary to assign to your former spouse all of your entitlements, including any preserved superannuation with your superannuation fund (Fund 1).

You state the Fund refused to transfer the funds to your former spouse claiming it was not legally obliged to do so.

In the 2006-07 income year the Fund advised a new personal superannuation account would be established for you in another fund (Fund 2) and your benefits transferred into that account.

In the 2010-11 income year you requested that Fund 2 release funds held in your name to your former spouse.

In a letter Fund 2 advised: the trustee cannot accept the order contained as a order was made before the Superannuation Split legislation took effect.

Your are over 60 years of age.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 301-15.

Income Tax Assessment Act 1997 Section 301-20.

Income Tax Assessment Act 1997 Section 307-345.

Income Tax Assessment Act 1997 Section 995-1.

Reasons for decision

Summary of decision

As the court orders were made before 28 December 2002 your superannuation interest in Fund 1 and later in Fund 2 cannot be made to your former spouse as requested.

It is considered that your former spouse has never had an interest in your superannuation benefits in Fund 1 or Fund 2. The superannuation interest remains with you and taxable in your hands.

However, as you are over 60 years of age in the 2011-12 income year, the tax-free component and the taxable component - element taxed of your superannuation benefit are not assessable income and not exempt income. No tax is payable by you and the payment is not included in your assessable income which means you can receive the monies from Fund 2 'tax free' and then forward those monies to your former spouse to satisfy the court orders..

Detailed reasoning

From 28 December 2002, the Superannuation Industry (Supervision) Act 1993 and Part VIIIB of the Family Law Act 1975 provides for the division of superannuation interests on marriage breakdown. Specifically, parties to a marriage breakdown are able to make a binding superannuation agreement setting out how superannuation interests are to be split. This could be done via a court order detailing how superannuation interests are to be split which is binding on the trustee of a fund in which the interest is held.

However, prior to 28 December 2002, a superannuation interest could not be split but a court could take a superannuation interest into account when making a property settlement.

In this case, by orders the Family Court of Australia ordered that you do all such acts and things necessary to assign to your former spouse all of your entitlements, including any preserved superannuation with your superannuation fund (Fund 1).

As the court orders were made before 28 December 2002 your superannuation interest in Fund 1 and later in Fund 2 cannot be made to your former spouse as requested.

As the superannuation interest cannot be split, it is considered that your former spouse has never had an interest in your superannuation benefits in Fund 1 or Fund 2. The superannuation interest remains with you and taxable in your hands.

Superannuation benefit components

Lump sum payments made to you from a superannuation fund are called superannuation lump sum benefits, and these benefits will generally comprise:

· a tax free component; and

· a taxable component, which may include both or one of the following:

· an element taxed in the fund; and/or

· an element untaxed in the fund.

Superannuation funds will calculate these components for each benefit that is paid. The taxation of superannuation member benefits paid from complying superannuation funds are set out in Division 301 of the ITAA 1997.

Section 301-10 of the ITAA 1997 states:

If you are 60 years or over when you receive a superannuation benefit, the benefit is not assessable income and is not exempt income.

However, any 'element untaxed' in the fund is taxed in accordance with Division 301-C of the ITAA 1997.

Section 301-100 of the ITAA 1997 applies to those over 60 years and states:

If you are 60 years or over when you receive a superannuation income stream benefit, the element untaxed in the fund of the benefit is assessable income.

You are entitled to a tax offset equal to 10% of the element untaxed in the fund of the benefit.

Although the taxable component can consist of an 'element taxed' in the fund and/or an element untaxed in the fund, the taxable component of a superannuation interest in a taxed fund such as those in Fund 2 normally consists solely of an element taxed in the fund.

As you are over 60 years of age in the 2011-12 income year, the tax-free component and the taxable component - element taxed of your superannuation benefit are not assessable income and not exempt income.

No tax is payable by you and the payment is not included in your assessable income.