Edited version of your written advice

Authorisation Number: 1012762300530

Ruling

Subject: Lump sum payment

Question

Is the top up payment to match an entitlement under a defined benefit superannuation scheme received on the termination of employment a superannuation benefit for the purposes of Division 301 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Income year ended 30 June 2014.

This ruling applies for the following periods:

No.

The scheme commences on:

1 July 2013.

Relevant facts and circumstances

You were employed with the Employer from 198X.

Your employment was terminated in the relevant income year due to retirement.

You were a member of a defined benefit superannuation scheme as per your original employment contract.

In 199X, the Employer encouraged you to join an accumulation fund. The Employer offered to pay a top up payment upon retirement to match your entitlement under the original defined benefit superannuation scheme. You accepted this offer.

On termination of employment, the Employer paid a top up payment of [amount] as an employment termination payment (ETP). This reflects a net top up payment of [amount].

A Deed of Release & Discharge (the Deed) was entered into by you and the Employer.

The relevant clauses of the Deed in relation to the top up payment state that a benefit payment of [amount] will be made to you as an ETP in full and final satisfaction and discharge of all claims that you have or may have against the Employer.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 307-5(1)

Income Tax Assessment Act 1997 Section 307-65

Income Tax Assessment Act 1997 Section 307-70

Reasons for decision

Summary

The Employer made the top up payment directly to you. The top up payment was not made from a superannuation fund, notwithstanding the intention of the payment was to match your entitlement under a previous superannuation scheme. Accordingly, the payment is not a superannuation benefit.

Detailed reasoning

Payment from a superannuation fund

A superannuation lump sum is defined in section 307-65 of the Income Tax Assessment Act 1997 (ITAA 1997) as a superannuation benefit that is not a superannuation income stream as defined in section 307-70. Superannuation income streams include pensions and annuities.

A superannuation benefit is defined in subsection 307-5(1) of the ITAA 1997. It includes a superannuation member benefit, which is defined in Column 2 of Item 1 of the table set out in that section as:

A payment to you from a superannuation fund because you are a fund member.

In this case your employment was terminated in the relevant income year. A Deed of Release & Discharge (the Deed) was signed by you and the Employer. The Deed stipulated a net top up payment of [amount] was to be made to you in full and final satisfaction and discharge of all claims you have or may have against the Employer. This top up payment was made in the 2013-14 income year.

As stated in the facts, the intention of this payment was to match your entitlement under a defined benefit superannuation scheme.

However, whether or not the intention was for the top up payment to be looked upon as a superannuation lump sum member benefit is not relevant. What is relevant is that the payment was not made from a superannuation fund.

It should be noted that there is no discretion in the legislation quoted above to allow the Commissioner of Taxation to treat a payment from the Employer as a superannuation benefit received from a superannuation fund. The Commissioner can only exercise, or refuse to exercise a discretion when, he is given that discretion under the legislation he administers.

Accordingly, the top up payment is not a superannuation member benefit.