Edited version of your private ruling

Authorisation Number: 1012501589455

Ruling

Subject: Minimum income stream requirements

Questions

1. Is the single payment made in respect of your account based pension in the relevant income year, for which you made an election under regulation 995-1.03 of the Income Tax Regulations 1997 (ITAR 1997) before the payment was made, a superannuation lump sum for income tax purposes?

2. If a single payment of X% of the minimum annual amount is made in respect of your account based pension for the subsequent income year, and you make an election under regulation 995-1.03 of the ITAR 1997 before the payment is made, will the payment be a superannuation lump sum for income tax purposes?

Answer

1. Yes.

2. Yes.

This ruling applies for the following periods:

Year ending 30 June 2013.

Year ending 30 June 2014

The scheme commences on:

1 July 2012

Relevant facts and circumstances

You are the trustee and member of a superannuation fund (the Fund).

The Fund is a self managed superannuation fund.

You are aged over 55 and under age 60.

You are retired and in receipt of an account based pension (the ABP) which commenced on 1 July 20XX. You are not in 'transition to retirement'.

The required minimum annual pension payment amount for the ABP for the relevant income year was $A representing Y% of the member account balance supporting the ABP.

The Fund made a single payment totalling $B in respect of the ABP for the relevant income year (the relevant year payment) and the payment was not rolled over.

The required minimum annual pension payment for the ABP for the subsequent income year is X% of the member account balance supporting the ABP.

In telephone discussion following our request for further information, you advised the following additional information in respect of the ABP:

· The Fund trust deed/fund rules and the ABP rules meet the requirements of regulation 995-1.03 of the Income Tax Assessment Regulations 1997 (ITAR 1997) and, hence, permit you to elect to have a payment from the ABP not treated as a superannuation income stream benefit.

· You made an election in accordance with regulation 995-1.03 of the ITAR before the relevant year single payment of $B was made, that the payment was not to be treated as a superannuation income stream benefit.

· In respect of the ABP for subsequent income year, you advised the Fund will be making approximately $C as a single payment representing X% of the minimum annual amount for the subsequent income year, and that you will make an election in accordance with regulation 995-1.03 of the ITAR 1997 before the single payment is made, that the payment is not to be treated as a superannuation income stream benefit.

Relevant legislative provisions

Income Tax Assessment Regulations 1997 - Regulations 995-1.01 and 995-1.03

Income Tax Assessment Act 1997 - Section 307-65.

Superannuation Industry (Supervision) Act 1993

Superannuation Industry (Supervision) Regulations 1994 - Regulations 1.06(9A) and subregulation 1.06(1)

Reasons for decision

Summary

The relevant year single payment of $B made in respect of your account based pension, for which you made an election under regulation 995-1.03 of the Income Tax Regulations 1997 (ITAR 1997, before the payment was made) is a superannuation lump sum for income tax purposes for the relevant income year.

On the basis of the information provided, the subsequent year payment will be considered a superannuation lump sum for income tax purposes for the subsequent year income year provided the following applies to the payment:

· the ABP has not ceased before the payment is made and does not cease at any time during the subsequent income year because of a breach of the SISR pension rules; and

· the subsequent year payment is the only payment made in respect of the ABP and will not be rolled over; and

· you also make an election in accordance with regulation 995-1.03 of the ITAR 1997 before the payment is made that the payment is not to be treated as a superannuation income stream benefit.

Detailed reasoning

The term superannuation income stream is defined in regulation 995-1.01 of the Income Tax Regulations 1997 (ITAR 1997) and relevantly for this ruling means an income stream that is taken to be a pension for the purposes of the Superannuation Industry (Supervision) Act 1993 (SIS Act) in accordance with subregulation 1.06(1) of the Superannuation Industry (Supervision) Regulations 1994 (SISR 1994).

A pension that satisfies subregulation 1.06(1) and paragraph 1.6(9A)(a) of the SISR 1994 is referred to as an account based pension. Subregulation 1.06(9A) of the SISR 1994 requires that the payment of an account based pension must occur at least annually.

Paragraph 1.06(9A)(a) requires that the total amount paid in any year must meet a minimum amount as calculated under clause 1 of Schedule 7 to the SISR 1994.

The term superannuation income stream benefit is also defined in regulation 995-1.01 of the ITAR and relevantly for this ruling means a payment from an interest that supports a superannuation income stream, other than a payment to which regulation 995-1.03 of the ITAR 1997 applies.

Regulation 995-1.03 A payment from an interest that supports a superannuation income stream is not a superannuation income stream benefit if:

(a) the conditions to which the superannuation income stream is subject allow for the variation of the amount of the payments of benefit in a year in circumstances other than:

(i) the indexation of the benefit under the rules of the product; or

(ii) the application of the family law splitting provisions; or

(iii) the commutation of the benefit (including commutation to pay a surcharge liability ); or

(iv) the payment of an assessment of excess contributions tax; and

(b) the person to whom the payment is made elects, before a particular payment is made, that that payment is not to be treated as a superannuation income stream benefit.

Taxation Ruling Income tax: when a superannuation income stream commences and ceases (TR 2013/5) provides the Commissioner's view of when a superannuation income stream commences and when it ceases, and consequently when a superannuation income stream is payable.

These concepts are relevant in determining the income tax consequences for both the superannuation fund and the member in relation to superannuation income stream benefits paid.

The relevant paragraphs of TR 2013/5 are as follows:

2. This Ruling considers the case where a member with an accumulation interest in a taxed complying superannuation fund commences a superannuation income stream on or after 1 July 2007 that meets the conditions of paragraph (a)(ii) of the definition of superannuation income stream in regulation 995-1.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997). That is, the superannuation income stream is taken to be a pension in accordance with subregulation 1.06(1) of the Superannuation Industry (Supervision) Regulations 1994 (SISR 1994).

3. Although there are various pension types that satisfy subregulation 1.06(1) of the SISR 1994. In this Ruling a product that satisfies these provisions is referred to as an 'account based pension' or a superannuation income stream.

…

Superannuation income stream benefits and superannuation lump sums

7. Each periodic payment, in a series of periodic payments, made from a superannuation interest that supports a superannuation income stream is a superannuation income stream benefit unless an election under regulation 995-1.03 of the ITAR 1997 has been made for that payment not to be treated as a superannuation income stream benefit.

8. A superannuation lump sum is a superannuation benefit that is not a superannuation income stream benefit. The following types of payments are superannuation lump sums.

· a payment from a superannuation interest that supports a superannuation income stream if, under regulation 995-1.03 of the ITAR 1997, the member elects before the payment is made for the payment to not be treated as a superannuation income stream benefit;

· a payment made from a superannuation interest that has ceased to support a superannuation income stream .

…

You have advised that your fund deed and ABP rules mean your superannuation income stream meets the conditions of regulation 995-1.03 of the ITAR 1997 for an election to be made to treat a payment from the income stream as not being a superannuation income stream benefit.

An election under regulation 995-1.03 of the ITAR must be made before the making of a particular payment and the superannuation income stream must not have ceased before the relevant payment is made or must not cease in the income year because the requirements of the SISR 1994 (the minimum annual pension amount) have been breached.

From the information provided, your account based pension (ABP) commenced on 1 July 20ZZ and did not cease during the relevant income year. The payment of $B was the only payment (the single payment) made in respect of your ABP for the income year and you made an election (as permitted by the Fund rules) in accordance with the requirements of regulation 995-1.03 of the ITAR 1997 before the single payment was made that the payment was not to be treated as a superannuation income stream benefit.

Therefore, on the basis of the information provided, and in accordance with the Commissioner's view in TR 2013/5, the single payment for the relevant income year is a superannuation lump sum for income tax purposes (as defined in section 307-65 of the Income Tax Assessment Act 1997 (ITAA 1997)). As you have advised that the income stream did not cease in the relevant income year and the payment was not rolled over, the payment counts towards the minimum annual amount required to be paid under the SISR 1994 for the relevant income year.

The X% of the ABP account balance representing the subsequent year payment (single payment) in respect of your ABP will be considered a superannuation lump sum for income tax purposes and as you have advised the payment will not be rolled over, will also count towards the minimum annual amount required to be paid under the SISR for the subsequent income year, subject to the following conditions being met:

· the ABP does not cease before the payment is made or must not cease in the income year because the requirements of the SISR 1994 (the minimum annual pension amount) have been breached during the subsequent income year; and

· the subsequent year payment is the only payment made in respect of the ABP and the payment is not rolled over; and

· you make an election in accordance with regulation 995-1.03 of the ITAR 1997 before the single payment is made that the payment is not to be treated as a superannuation income stream benefit.