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Ruling
Subject: Temporary Flood and Cyclone Reconstruction Levy
Question 1
Will money transferred from two superannuation funds directly into an allocated pension be subject to the Temporary Flood and Cyclone Reconstruction Levy (the flood levy)?
Answer
No.
Question 2
Will the portion of your allocated pension paid from taxed sources be included in calculating your taxable income for the purposes of applying the flood levy?
Answer
No.
Question 3
Will the portion of your allocated pension paid from untaxed sources be included in calculating your taxable income for the purposes of applying the flood levy?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts and circumstances
You are currently a member of multiple superannuation funds.
You will move the majority of your superannuation from these funds into an allocated pension.
You will commence receiving a monthly allocated pension while still working under a transition to retirement arrangement.
The allocated pension will be used for a non commutable income stream.
You are aged over 60 years of age.
Relevant legislative provisions
Income Tax (Transitional Provisions) Act 1997 Section 4-10
Income Tax Assessment Act 1997 Section 4-15
Income Tax Assessment Act 1997 Section 380-35
Income Tax Assessment Act 1997 Section 301-10
Income Tax Assessment Act 1997 Section 301-100
Income Tax Assessment Act 1997 Section 307-70
Reasons for decision
Summary
The money transferred from your two superannuation funds into an allocated pension will not be subject to the flood levy as it does not form part of your assessable income.
That portion of the monthly allocated pension payments that is paid from untaxed sources in the superannuation fund is included in calculating your taxable income. If your taxable income exceeds $50,000 you will be subject to the flood levy.
Detailed reasoning
The Australian Government has introduced the flood levy for the financial year ended 30 June 2012. The flood levy is designed to assist affected communities to recover from the recent natural disasters by providing additional funding to rebuild essential infrastructure, such as, roads, bridges and schools.
Section 4-10 of the Income Tax (Transitional Provisions) Act 1997 states you must pay the flood levy where your taxable income for the 2011-12 financial year exceeds $50,000 unless you are covered by the exemption provision. The flood levy is an additional amount to the normal income tax calculated on your taxable income. Only individuals are subject to the flood levy.
Section 4-15 of the Income Tax Assessment Act 1997 (ITAA 1997) states taxable income is calculated as your assessable income less any allowable deductions. What constitutes assessable income and allowable deductions is determined by the provisions of the income tax legislation.
Transfer of money from superannuation funds to an allocated pension
Section 380-35 of the ITAA 1997 states a member can 'roll over' their superannuation benefits from one complying fund to another, or between different interests in the same plan. This is usually done to keep the benefits invested in the superannuation system, or to convert a lump sum to a superannuation income stream. No tax is generally payable until the benefits are finally drawn down.
Thus, the money that will be transferred between your current two superannuation funds to the allocated pension fund will not form part of your assessable income and will not be subject to the flood levy.
Monthly allocated pension
A monthly allocated pension falls within the definition of a superannuation income stream (section 307-70 of ITAA 1997).
The allocated pension payment may be paid from both taxed and untaxed sources in the superannuation fund.
The following tax treatment will apply to the allocated pension payment for a recipient who is 60 years or over:
· that element of the payment which is paid from an untaxed source is assessable income and subject to marginal tax rates (section 301-100 of ITAA 1997)
· that element of the payment which is paid from a taxed source is not assessable income and not exempt income (section 301-10 of ITAA 1997).
In your case, only the untaxed portion of the allocated pension payments you receive will be included in calculating your assessable income.
If this amount combined with your other assessable income (less deductions) exceeds $50,000 the flood levy will be applied in determining your tax liability for the year ended 30 June 2012.