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Edited version of your written advice
Authorisation Number: 1012762143193
Ruling
Subject: Taxation of superannuation benefits
Question
Does your client satisfy the terminal illness condition requirements so that the exemption under section 303-10 of the Income Tax Assessment Act 1997 (ITAA 1997) applies to lump sum payments received by your client from a superannuation fund?
Answer
Yes.
This ruling applies for the following period:
Income year ended 30 June 2014.
The scheme commenced on:
1 July 2013.
Relevant facts and circumstances
Your client (the Deceased) died in 20XX after a long battle with a serious illness.
You have provided a copy of a medical report in 20YY from Doctor A who is an specialist practising in the area related to the Deceased's illness. The report states that the Deceased, in the doctor's opinion, has less than six months life expectancy.
You have also provided a copy of a medical report in 20YY from Doctor B who was the Deceased's regular general practitioner. In Doctor B's opinion, the Deceased's condition was terminal.
In a letter in 20XX, Doctor B clarifies their earlier medical report and states that 'terminal illness' refers to an illness causing death usually within six months.
A month prior to the Deceased's death, as a result of a Total and Permanent Disablement claim a superannuation fund (the Fund) paid two lump sum payments to the Deceased.
The Fund is an APRA regulated fund.
PAYG withholding was deducted from lump sum payments notwithstanding that the Fund was provided with two medical certificates confirming the terminal illness of the Deceased.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 303-10
Income Tax Assessment Act 1997 Subsection 307-5(1)
Income Tax Assessment Act 1997 Section 307-65
Income Tax Assessment Act 1997 Subsection 995-1(1)
Income Tax Assessment Regulations 1997 Regulation 303-10.01
Reasons for decision
Summary of decision
Lump sum benefits received by the Deceased from the Fund are superannuation lump sum member benefits that meet the requirements of a terminal medical condition in regulation 303-10.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997).
Consequently, these superannuation lump sums are not assessable income and are not exempt income. That is, they are tax-free.
Detailed reasoning
Section 303-10 of the ITAA 1997 sets out the tax treatment of a superannuation lump sum member benefit paid to members having a terminal medical condition. Section 303-10 of the ITAA 1997 states:
(1) This section applies to a *superannuation member benefit that:
(2) The lump sum is not assessable income and is not exempt income if a terminal medical condition exists in relation to you when you receive the lump sum or within 90 days after you receive it.
In accordance with subsection 307-5(1) of the ITAA 1997, a superannuation member benefit is a payment to a person from a superannuation fund because the person is a fund member.
A superannuation lump sum is defined in section 307-65 of the ITAA 1997 as a superannuation benefit that is not a superannuation income stream benefit.
Subsection 995-1(1) of the ITAA 1997 defines 'terminal medical condition' to have the meaning given by the regulations.
In accordance with regulation 303-10.01 of the ITAR 1997, a terminal medical condition exists in relation to a person at a particular time if:
(a) two registered medical practitioners have certified, jointly or separately, that the person suffers from an illness, or has incurred an injury, that is likely to result in the death of the person within a period (the certification period) that ends not more than 12 months after the date of the certification;
(b) at least one of the registered medical practitioners is a specialist practising in an area related to the illness or injury suffered by the person;
(c) for each of the certificates, the certification period has not ended.
In this case, the Deceased received two lump sum benefits from a superannuation fund because they were a member of that fund. As such, the lump sum payments are superannuation member benefits.
The Fund is a complying superannuation fund and two registered medical practitioners (one of whom is a specialist practicing in the area related to the Deceased's illness) have certified, that the Deceased suffers from an illness that is likely to result in the death of the Deceased within six months after the date of the certification. At the time of the payment, the certification period had not ended.
Consequently, in accordance with section 303-10 of the ITAA 1997, lump sum payments received by the Deceased from the Fund are not assessable income and are not exempt income. That is, they are tax-free.