| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private advice
Authorisation Number: 1012683216613
Ruling
Subject: Disability superannuation benefit.
Question
Has any part of the superannuation lump sum you received been modified for disability benefit under section 307-145 of the Income Tax Assessment Act 1997?
Answer
Yes.
This ruling applies for the following period
Year ending 30 June 2014
The scheme commences on
1 July 2013
Relevant facts and circumstances
1. You have been a member of the Fund since the 19XX income year.
2. You were diagnosed with a medical condition, and your condition became progressively worse. As a result, you ceased working full time on during the 20XX income year.
3. You were employed part time from 20YY until 20ZZ. You stopped working because you were no longer able to perform your duties due to your ill health.
4. You have obtained certification from two legally qualified:
• you suffered from a medical condition; and
• that due to your ill-health, you are only able to copy with activities of daily living; and
• you are considered totally and permanently incapacitated
5. You lodged a claim for a Total and Permanent Disablement (TPD) Insurance Benefit in respect of your fund membership.
6. During the relevant income year you received confirmation from the Fund that your application for early release of your superannuation benefits in respect of your fund membership on the grounds of permanent incapacity had been approved and the total superannuation benefits was paid to your nominated account.
7. You provided a copy of the relevant PAYG payment summary for the superannuation lump sum benefits from the Fund.
8. To date you are unemployed and still unable to work due to your ill health.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 307-120.
Income Tax Assessment Act 1997 section 307-145.
Income Tax Assessment Act 1997 section 995-1.
Reasons for decision
Summary
The lump sum payment from the Fund will contain a tax free and taxable component. Our calculations resulted in a tax free component of higher than the tax free component calculated by the Fund. The remaining balance will be taxable at marginal rates.
Detailed reasoning
Disability superannuation benefit
1. A disability superannuation benefit is defined under subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) as follows:
disability superannuation benefit means a superannuation benefit if:
(a) the benefit is paid to a person because he or she suffers from ill-health (whether physical or mental); and
(b) 2 legally qualified medical practitioners have certified that, because of the ill-health, it is unlikely that the person can ever be gainfully employed in a capacity for which he or she is reasonably qualified because of education, experience or training.
2. If a person receives a disability superannuation benefit as a superannuation lump sum, the tax free component of the benefit is increased to broadly reflect the period where they would have expected to have been gainfully employed (that is, their future employment service period).
3. The above is referred to as the modification for disability superannuation benefits if the benefit is a superannuation lump sum and a disability superannuation benefit.
4. On the basis of the information provided, it can be established you have received medical reports from two legally qualified medical practitioners which meet the requirements of a disability superannuation benefit as defined in subsection 995-1(1) of the ITAA 1997.
Superannuation benefit
5. A superannuation benefit includes a superannuation fund payment made to you from a superannuation fund because you are a fund member. When it is paid to you as a lump sum, this is referred to as a superannuation lump sum payment.
6. The components of a superannuation benefit are worked out under section 307-120 of the ITAA 1997 and will consist of the tax free component and the taxable component.
Modification for disability superannuation benefits
7. Under section 307-145 of the ITAA 1997, where a person receives a disability superannuation benefit as a superannuation lump sum, the tax free component of the benefit is increased to broadly reflect the period where they would have expected to have been gainfully employed.
8. As the payment of the superannuation lump sum from the Fund in respect of your membership is also a disability superannuation benefit, the modification for disability benefits under section 307-145 of the ITAA 1997 will apply and will be calculated as follows.
Tax free component = Days to retirement /Service days + Days to retirement; where:
• Days to retirement is the number of days from the day on which the person stopped being capable of being gainfully employed to his or her last retirement day
= days from date service period ended to last retirement day
• Service days is the number of days in the service period for the lump sum
= days from date service period commenced to date service period ended
9. According to subsection 307-145(4) of the ITAA 1997, the balance of the superannuation benefit is the taxable component of the benefit.
Therefore, the taxable component should be included in your income tax return for the relevant income year.