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Edited version of private advice
Authorisation Number: 1012644626268
Ruling
Subject: Superannuation pension offset/rebate
Question
Are you entitled to a rebate/offset in respect of your pension paid from a hybrid superannuation scheme in the 2000-01 to 2006-07 income years?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2001
Year ended 30 June 2002
Year ended 30 June 2003
Year ended 30 June 2004
Year ended 30 June 2005
Year ended 30 June 2006
Year ended 30 June 2007
The scheme commences on:
1 July 2000
Relevant facts and circumstances
You were a contributing member of a hybrid superannuation scheme (the Scheme). A hybrid superannuation scheme is a scheme that is both an accumulation fund and a defined benefits scheme.
You commenced to receive a pension from the Scheme in the mid-1990s.
At the time of the commencement of your pension, the Scheme paid you a lump sum.
The lump sum consisted of an amount which was transferred to an Australian superannuation fund and an amount which was paid directly to you.
In recent correspondence from the Scheme administrator it is confirmed that all your member contributions were taken as a lump sum and your 'employer component' was converted into a pension.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 301-100(1).
Income Tax Assessment Act 1997 Subsection 301-100(2).
Income Tax Assessment Act 1936 Section 159SM.
Income Tax Assessment Act 1936 Subsection 159SM(2).
Reasons for decision
Summary
As you are in receipt of a pension that is paid from an untaxed source, you are not entitled to the 15% rebate in respect of your pension payments received in the 2001-2007 income years.
Detailed reasoning
Benefits payable under the Scheme generally consist of the following three components:
• your member component
• your productivity component
• your employer-financed component
Your member component is your accumulated member contributions and earnings on those contributions.
Your productivity component represents accumulated fortnightly superannuation productivity contributions made by your employer on your behalf and earnings on those contributions.
Both the member component and the productivity component accumulate in a accumulation fund (the Fund). The Fund is a taxed superannuation scheme.
Your employer-financed component is a payment financed by your employer and does not accumulate in the Fund. Instead, it is a defined benefit amount determined by a number of factors including your final superannuation salary. The employer-financed component is paid as a pension that is indexed in line with upward movements of the consumer price index (CPI) and is paid from an untaxed source. As a result, this component is considered a taxable component - untaxed element.
Recent correspondence from the Scheme administrator, confirms that all your member contributions were taken as a lump sum and your 'employer component' was converted into a CPI-indexed pension.
Subsection 301-100(1) of the Income Tax Assessment Act 1997 (ITAA 1997) 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.
Subsection 301-100(2) of the ITAA 1997 states:
You are entitled to a tax offset equal to 10% of the element untaxed in the fund of the benefit.
Subsection 301-100(2) of the ITAA 1997 is applicable to superannuation income stream benefits with an element untaxed in the fund received after 1 July 2007.
Prior to the legislative changes applicable from 1 July 2007, former section 159SM of the Income Tax Assessment Act 1936 (ITAA 1936) provided that a taxpayer was entitled to a 15% rebate of tax in respect of a rebatable superannuation pension paid from a complying superannuation fund (that is not a constitutionally protected fund).
However, under former subsection 159SM(2) of the ITAA 1936, a taxpayer is not entitled to the rebate is respect of a rebatable superannuation pension if the applicable fund in relation to the superannuation pension is not a taxed superannuation fund in relation to the year of income of the fund in relation to the year of income of the fund that corresponds with that year of income of the taxpayer.
As noted earlier, the CPI indexed-pension is paid out of an untaxed source. As such, the CPI indexed-pension is not paid from a taxed superannuation fund.
As you have been in receipt of a CPI indexed-pension since early 1994 you are not entitled to the rebate in respect of your pension under former section 159SM of the ITAA 1936 for the 2001-2007 income years.