Edited version of your private ruling

Authorisation Number: 1012496687720

Ruling

Subject: Total and permanent disablement pensions

Questions

1. Will total and permanent disability (TPD) pension benefits that commenced on or after 20 September 2007 and which do not comply with subregulation 1.06(1) of the Superannuation Industry (Supervision) Regulations 1994 be superannuation income stream benefits under section 307-70 of the Income Tax Assessment Act 1997 (ITAA 1997)?

2. If the TPD pension benefits are not superannuation income stream benefits under section 307-70 of the ITAA 1997 will the TPD benefits be an annuity for the purposes of section 27H of the Income Tax Assessment Act 1936 (ITAA 1936)?

Advice/Answers

1. No.

2. No.

This ruling applies for the following period

Year ending 30 June 2017

The scheme commenced on

1 July 2007

Relevant facts and circumstances

The Plan is a complying superannuation fund that is a taxed fund. The Plan has multiple divisions including defined benefit divisions.

The Plan provides a self-insured benefit to members in the event of temporary or total and permanent disablement in accordance with the Trust Deed and Rules.

The Plan currently pays out total and permanent disablement (TPD) pensions which commenced on or after 20 September 2007.

Members of the Plan in receipt of TPD benefits suffer 'permanent incapacity' as defined in Regulation 6.01(2) of the Superannuation Industry (Supervision) Regulations 1994 (the SISR).

Members of one division of the Plan who are TPD are entitled to receive a lump sum benefit. However, (with approval of the employer and the trustee of the Plan) they may elect to receive or continue to receive a disability pension payable in lieu of a TPD lump sum benefit.

For members of another division of the Plan, the TPD benefit is:

· a pension payable on a monthly basis until:

· their Superannuation Date (the members normal retirement date depending upon the role the employee undertook); or

· until other circumstances such as death.

· plus a lump sum benefit equal to their retirement benefit at that date.

The TPD pensions do not satisfy the meaning of pension under Regulation 1.06(1) of the SISR but nevertheless still meets the payment standards prescribed under section 31(1) of the Superannuation Industry (Supervision) Act 1993 (the SISA).

Assumptions

It may be assumed that members of the Plan in receipt of TPD benefits are Australian Tax residents and the Plan trustee holds their Tax File Numbers for PAYG withholding purposes.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 27H

Income Tax Assessment Act 1997 Subdivision 307-B

Income Tax Assessment Act 1997 Subsection 307-5(1)

Income Tax Assessment Act 1997 Section 307-65

Income Tax Assessment Act 1997 Section 307-70

Superannuation Industry (Supervision) Act 1993 Section 31(1)

Superannuation Industry (Supervision) Regulations 1994 Subregulation 1.06(1)

Further issues for you to consider

Not applicable.

Anti-avoidance rules

Not applicable.

Reasons for decision

Summary

The TPD pension benefits do not satisfy the meaning of 'pension' under the regulations. The TPD pension benefits made by the Plan are not superannuation income stream benefits. The TPD pension benefits are superannuation lump sums.

Section 27H of the ITAA 1936 does not apply to the TPD pension benefits as the TPD pension benefits are considered superannuation lump sums.

Detailed reasoning

Subsection 307-5(1) of the ITAA 1997 defines the term 'superannuation benefit' and states:

A superannuation benefit is a payment described in the table.

…

In this case it is clear that the TPD pension benefits payable by the Plan, which is a complying superannuation fund, to its members are superannuation benefits under Item 1, column 2 of the table in subsection 307-5(1) of the ITAA 1997. The TPD pension benefits are superannuation member benefits as they are payments from the superannuation fund to individuals because they are members of the fund.

A superannuation benefit can be either a lump sum or an income stream. Subdivision 307-B of the ITAA 1997 defines the meaning of superannuation lump sum, superannuation income stream and superannuation income stream benefits. Section 307-65 of the ITAA 1997 states:

A superannuation lump sum is a superannuation benefit that is not a superannuation income stream benefit (see section 307-70).

Further, section 307-70 of the ITAA 1997 states:

(1) A superannuation income stream benefit is a superannuation benefit specified in the regulations that is paid from a superannuation income stream.

(2) A superannuation income stream has the meaning given by the regulations.

Accordingly, a superannuation benefit that is not a superannuation income stream benefit is a superannuation lump sum.

You state that the TPD pension benefits meet the payment standards prescribed under section 31(1) of the SISA. However, the TPD pension benefits do not satisfy the meaning of pension under regulation 1.06(1) of the SISR.

Therefore, although the TPD pension benefits made by the Plan are superannuation benefits, they are not superannuation income stream benefits. Thus the TPD pension benefits are superannuation lump sums.

You have raised that section 27H of the ITAA 1936 may apply to the TPD pension benefits.

Paragraph 2.23 of the Explanatory Memorandum to the Superannuation Legislation Amendment (Simplification) Bill 2007 which made consequential and other amendments to both the ITAA 1997 and the ITAA 1936 states:

Currently, section 27H of the ITAA 1936 includes amounts of annuities or superannuation pensions in assessable income. From 1 July 2007 revised taxation arrangements apply to Australian-sourced superannuation income streams, but section 27H continues to apply to other income streams (foreign sourced benefits and non-superannuation annuities). There is no intention to modify the operation of this provision for foreign-sourced benefits or non-superannuation annuities.

From the above it is clear that section 27H of the ITAA 1936 does not apply to the TPD pension benefits as they are considered superannuation lump sums under section 307-65 of the ITAA 1997.