Edited version of your written advice

Authorisation Number: 1012722046324

Ruling

Subject: Superannuation income stream benefit - tax offset

Question

Are you entitled to claim a tax offset in accordance subsection 301-40(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You have not reached your preservation age as at 30 June 2014.

You commenced work with an (the Employer) over 10 years ago.

In the 2011-12 income year, the Employer commenced the process for your medical retirement.

In the 2011-12 income year your superannuation fund (the Fund) considered you to be permanently disabled for the purposes of retirement on the grounds of ill health, and that your disability would qualify as permanent and partial for taxation purposes.

As part of the evidence provided to the Fund where Medical Reports for the Employer which included reports from two legally qualified medical practitioners which show that it is unlikely that you will ever be gainfully employed in a capacity for which you are reasonably qualified by education, experience or training.

You retired from your employment during the 2011-12 income year.

Details were provided of your employment duties.

In the 2011-12 income year a superannuation income stream paid by the Fund commenced.

In the 2012-13 income year you commenced employment in a role that is not related to your training, education or qualifications on a casual basis with an average of two shifts per week. In addition, you do not have the capacity to work greater hours.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 301-25.

Income Tax Assessment Act 1997 section 301-40.

Income Tax Assessment Act 1997 subsection 301-40(1).

Income Tax Assessment Act 1997 subsection 301-40(2).

Income Tax Assessment Act 1997 subsection 995-1(1).

Reasons for decision

Summary

You are entitled to a tax offset in respect of the taxed element of a taxable component of a superannuation income stream benefit in each of the 2011-12, 2012-13 and 2013-14 income years.

The tax offset you receive is equal to 15% of the taxable component of the benefit received in each income year.

Detailed reasoning

Subdivision 301-B of the Income Tax Assessment Act 1997 (ITAA 1997) applies to superannuation income stream benefits that are received from complying superannuation funds. In particular, section 301-40 of the ITAA 1997 governs the taxation treatment of superannuation income stream benefits where the recipient is under their preservation age.

Subsection 301-40(1) of the ITAA 1997 states:

If you are under your preservation age when you receive a superannuation income stream benefit, the taxable component of the benefit is assessable income.

You receive a pension from the Fund, which is also a taxed superannuation fund.

Your superannuation income stream benefit contains a taxed element of a taxable component. The tax treatment of the taxable component - taxed element depends on the age of the taxpayer.

Preservation age is the age at which retirees can access their superannuation benefits. The facts provided show that you have not reached your preservation age.

You are under the preservation age at all times during the 2011-12, 2012-13 and 2013-14 income years.

As you are under the preservation age, the taxed element of the taxable component is included in full in your assessable income in accordance with subsection 301-40(1) of the ITAA 1997.

Tax offset for disability superannuation benefit

Subsection 301-40(2) of the ITAA 1997 states:

If the benefit is a superannuation income stream benefit and a disability superannuation benefit, you are entitled to a tax offset equal to 15% of the taxable component of the benefit.

Subsection 995-1(1) of the ITAA 1997 defines 'disability superannuation benefit' as a superannuation benefit if:

(a)  the benefit is paid to an individual 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 individual can ever be gainfully employed in a capacity for which he or she is reasonably qualified because of education, experience or training.

In the 2011-12 income year you were medically discharged by the Employer.

In addition, two qualified medical practitioners have certified that, because of your ill-health, it is unlikely that you can ever be gainfully employed in a capacity for which you are reasonably qualified because of education, experience or training.

Therefore it is accepted that the superannuation income stream benefit is a disability superannuation benefit within the meaning of subsection 995-1(1) of the ITAA 1997.

Because your superannuation income stream benefit is a disability superannuation benefit and you are below your preservation age, you are entitled to a tax offset in accordance with subsection 301-40(2) of the ITAA 1997. As noted above, the tax offset is equal to 15% of the taxable component of the benefit.

The amount of tax offset you can receive in each of the 2011-12, 2012-13 and 2013-14 income years is equal to 15% of the taxable component - taxed element of the benefit you received in each of those income years.