Edited version of your written advice

Authorisation Number: 1012727707440

Ruling

Subject: Calculation of the crystallised segment of a roll-over superannuation benefit

Question

When calculating the crystallised segment of a roll-over superannuation benefit that consists of an element untaxed in the fund, is the relevant period for the pre-July 1983 component from the date you commenced membership with the paying superannuation fund to 30 June 2007?

Answer

No

This ruling applies for the following period:

Income year ending 30 June 2015

The scheme commences on:

1 July 2014

Relevant facts and circumstances

Prior to 1 July 1983, you became a member of a superannuation fund (the Fund).

The Fund is established under a State Act.

During the relevant income year, the trustee of the Fund rolled over an amount from the Fund to a self-managed superannuation fund (the SMSF).

The roll-over superannuation benefit consists of an element untaxed in the fund.

You seek clarification regarding the relevant period to calculate the pre-July 83 component to be included in the crystallised segment of your superannuation benefit.

Relevant legislative provisions

Taxation Administration Act 1953 Section 288-105 of Schedule 1

Income Tax Assessment Act 1936 Subsection 27A(1)

Income Tax Assessment Act 1997 Section 307-150

Income Tax Assessment Act 1997 Subsection 307-150(4)

Income Tax Assessment Act 1997 Section 307-225

Income Tax Assessment Act 1997 Subsection 307-225(1)

Income Tax Assessment Act 1997 Subsection 307-225(2)

Income Tax Assessment Act 1997 Subsection 307-225(3)

Income Tax Assessment Act 1997 Subsection 307-225(4)

Income Tax Assessment Act 1997 Section 307-400

Income Tax Assessment Act 1997 Subsection 307-400(1)

Income Tax Assessment Act 1997 Subsection 995-1(1)

Income Tax Assessment Regulations 1997 Schedule 4 Part 4

Reasons for decision

Summary

When calculating the pre-July 1983 component of a roll-over superannuation benefit consisting of an element untaxed in the fund, the relevant period (the service period) is the period of membership with the Fund. That is, the period from the date you joined the Fund to the date the benefit is rolled over into the SMSF.

Detailed reasoning

Crystallised segment

In accordance with subsection 307-225(1) of the Income Tax Assessment Act 1997 (ITAA 1997), to work out the crystallised segment of a superannuation interest, first assume that:

(a) an eligible termination payment had been made in respect of the holder of the interest just before 1 July 2007; and

(b) the amount of the eligible termination payment had been equal to the value of the interest at that time.

The crystallised segment is defined in subsection 307-225(2) of the ITAA 1997 as so much of the value of the interest as consists of the total of the following components of the eligible termination payment:

(a) the concessional component;

(b) the post-June 1994 invalidity component;

(c) the undeducted contributions;

(d) the CGT exempt component;

(e) the pre-July 83 component.

In accordance with subsection 307-225(4) of the ITAA 1997,the following terms have the same meaning as in subsection 27A(1) of the Income Tax Assessment Act 1936 (ITAA 1936) (as in force just before 1 July 2007):

(a) concessional component;

(b) post-June 1994 invalidity component;

(c) undeducted contributions;

(d) CGT exempt component;

(e) pre-July 83 component;

(f) eligible termination payment.

From the above, it can be seen that, to work out the crystallised segment of a superannuation benefit, a superannuation fund is to assume that an eligible termination payment (ETP) had been made in respect of a person just before 1 July 2007 and that the amount of the ETP had been equal to the value of the person's interest in the fund at that time.

An ETP paid by a superannuation fund will be an ETP under paragraph (b) of the definition of an ETP in subsection 27A(1) of the ITAA 1936 which states:

any payment made from a superannuation fund in respect of the taxpayer by reason that the taxpayer is or was a member of the fund...

However, subsection 307-225(3) of the ITAA 1997 provides that in calculating the pre-July 1983 component, the value of the superannuation interest just before 1 July 2007 is disregarded to the extent that it would consist, apart from that subsection, of the element untaxed in the fund of the taxable component of a superannuation benefit constituted by the eligible termination payment.

The pre-July 1983 segment for an element untaxed in the fund

In regards to the pre-July 83 component and the element untaxed in the fund, the explanatory memorandum to the Tax Laws Amendment (Simplified Superannuation) Act 2007 explains at paragraph 2.144:

2.144 Separate arrangements apply to superannuation benefits that have not been subject to contributions or earnings tax within the fund.  This reflects existing arrangements.  The pre-July 1983 segment for an element untaxed in the fund is only calculated when a lump sum superannuation benefit is withdrawn from a superannuation plan or rolled over into a taxed superannuation scheme.  [Schedule 1, item 1, section 307-150]

In accordance with section 307-280 of the ITAA 1997, the taxable component of a superannuation benefit paid from a superannuation fund that is a constitutionally protected fund consists wholly of an element untaxed in the fund.

Constitutionally protected fund is defined in subsection 995-1(1) of the ITAA 1997 as a fund that is declared by the regulations to be a constitutionally protected fund.

Relevantly, in accordance with regulation 995-1.04 of the Income Tax Assessment Regulations 1997 (ITAR 1997), for the purposes of subsection 995-1(1) of the ITAA 1997, a constitutionally protected fund is a fund that is established by:

(i)  a State Act mentioned in Schedule 4; or

(ii)  a specified provision of a State Act mentioned in Schedule 4;

Part 4 of Schedule 4 to the ITAR 1997 lists the relevant State Acts. As the Fund was established under an Act mentioned in Schedule 4, the Fund is a constitutionally protected fund and a benefit paid from the Fund consists of an element untaxed in the fund.

Therefore, the element untaxed in the fund of the roll-over superannuation benefit paid by the Fund is disregarded from the calculation of the pre-July 1983 component under subsection 307-225(3) of the ITAA 1997.

Accordingly, the calculation of the pre-July 1983 component of the roll-over superannuation benefit is modified in accordance with section 307-150 of the ITAA 1997 which applies to a superannuation lump sum that is a roll-over superannuation benefit that includes an element untaxed in the fund.

Modification in respect of superannuation lump sum with element untaxed in the fund

Relevant to this case, subsection 307-150(4) of the ITAA 1997 provides the formula to calculate the pre-July 1983 component as follows:

Work out the amount by applying the following formula:

Original tax free component and untaxed element	×	Number of days in the *service period for the lump sum that occurred before 1 July 1983
		Number of days in the *service period for the lump sum

where:

original tax free component and untaxed element is the sum of:

(a) the *tax free component of the *superannuation benefit (apart from this section); and

(b) the *element untaxed in the fund of the superannuation benefit (apart from this section

By virtue of subsection 995-1(1) of the ITAA 1997, service period is defined in 307-400 of the ITAA 1997.

In regard to superannuation fund payments, subsection 307-400(1) of the ITAA 1997 provides that, if some or all of the superannuation lump sum accrued while you were a member of a superannuation fund, the service period is the period of membership.

In the present case, you commenced membership with the Fund prior to 1 July 1983. During the relevant income year, the trustee of the Fund rolled-over an amount from the Fund to your SMSF.

Therefore, the relevant period (ie, the service period) for the purpose of calculating the pre-July 1983 component of the element untaxed in the fund of the roll-over superannuation benefit is the date you commenced membership with the Fund to the date when the roll-over was made to your SMSF.