Edited version of your private ruling

Authorisation Number: 1012457211166

Ruling

Subject: Superannuation fund payment

Questions:

1. Is any part of the lump sum payment received from your superannuation fund included in assessable income?

2. Does the Commissioner have the power to exclude any taxable part of the lump sum payment from assessable income?

Advice/Answers:

1. Yes.

2. No.

This ruling applies for the following period:

1 July 2011 to 30 June 2012

The scheme commenced on:

1 July 2011

Relevant facts:

You are under 55 years of age.

Some years ago you had surgery. From then on you have been unable to work, have resigned and now live on a disability pension.

In the relevant income year your superannuation fund approved your total and permanent disability (TPD) claim and paid an amount into your superannuation fund.

You withdrew amounts from your superannuation fund and paid outstanding debts which enabled you and your children to remain in your home.

Of the amount withdrawn some amount (the amount) is a taxed element.

You state that the amount is classed as income by the Australian Taxation Office (ATO) and a government agency will be subject to income tests and therefore affects the calculation of certain payments.

The superannuation payment will be added to your pension amount and be used to calculate those payments for the relevant income year.

After your discussions with the government agency and your local Federal Member of Parliament the government agency has agreed not to class the amount as income if the ATO makes such a ruling.

You have not lodged your relevant tax return.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 301-30.

Income Tax Assessment Act 1997 Subsection 301-35(1).

Income Tax Assessment Act 1997 Subsection 301-35(2).

Income Tax Assessment Act 1997 Section 307-125.

Income Tax Assessment Act 1997 Section 307-145.

Reasons for decision

Summary

The taxable component of a lump sum superannuation benefit is assessable income. The Commissioner has no discretion to exclude the taxable component of a lump sum superannuation benefit from being included in your assessable income.

Detailed reasoning

Taxation of a lump sum superannuation benefit

A superannuation benefit received from a superannuation fund, subject to meeting the preservation rules and conditions of release under the Superannuation Industry (Supervision) Act 1993, will have the following: components:

· a tax free component; and

· a taxable component which may include:

- an element taxed in the fund; and/or

- an element untaxed in the fund.

These two components attract different tax treatments.

Tax free component

The tax free component of a lump sum superannuation benefit typically includes contributions from a person's post-tax income and, where applicable, amounts which represent the portion of a superannuation benefit that accrued before 1 July 1983.

In the case of a disability benefit the superannuation fund calculates the tax free component which is increased to reflect the period where the member could have expected to be gainfully employed if the disability had not occurred.

Under section 301-30 of the Income Tax Assessment Act 1997 (ITAA 1997), the tax free component of a benefit paid to a member of a superannuation fund who is under the preservation age is not assessable income and not exempt income. It does not have to be declared in your tax return.

For a person born after 30 June 1964 the preservation age is 60 years.

Taxable component

The taxable component of a lump sum superannuation benefit typically includes:

· contributions made by the employer on the persons behalf;

· tax-deductible contributions made by the person; and

· earnings on these contributions.

For most superannuation funds the taxable component will consist entirely of an element taxed in the fund. In certain limited circumstances, the taxable component may also contain an element untaxed in the fund.

The tax treatment of the taxed element of a taxable component depends on the age of the taxpayer.

For taxpayers who are under the taxpayer's preservation age, the taxed element of a taxable component is fully included in the taxpayers assessable income under subsection 301-35(1) of the ITAA 1997.

A tax-offset will apply to ensure that the rate of tax payable is not greater than 20% plus Medicare levy under subsection 301-35(2) of the ITAA 1997. This will apply in your case as you are under preservation age.

Commissioners discretion

As noted above, a superannuation benefit received from a superannuation fund will be taxed according to whether it is a tax free component, an element taxed in the fund of a taxable component or an element untaxed in the fund of a taxable component as well as a person's age.

The ITAA 1997 does not contain any provision which allows the Commissioner to exercise his discretion to exclude the taxable component of lump sum superannuation benefits from being included in assessable income.

Therefore, the Commissioner cannot exclude the treatment of the taxable component of lump sum superannuation benefits where the relevant provisions require them to be included in your assessable income.