Edited version of your written advice

Authorisation Number: 1012764441227

Ruling

Subject: Superannuation lump sum - untaxed element

Question

Is the taxpayer entitled to a tax offset under section 301-95 of the ITAA 1997 with respect to a superannuation lump sum they received while they were under 60 years of age to ensure that the rate of income tax on the entire untaxed element does not exceed 15%?

Answer

No

This ruling applies for the following period:

Year ending 30 June 2015

The scheme commences on:

1 July 2014

Relevant facts and circumstances

During the 2013-14 income year, the taxpayer's employment was terminated as a result of genuine redundancy.

The taxpayer was a member of a superannuation fund (the Fund) but was advised that they could not leave their superannuation benefits in the Fund after the termination of their employment.

During the 2014-15 income year, the taxpayer received a superannuation lump sum payment from the Fund. The taxpayer was under 60 years of age but over their preservation age at the time of the payment.

The taxpayer received a PAYG payment summary from the Fund for the income year ended 30 June 2015. The payment summary detailed the lump sum payment as being made up of a taxable component - untaxed element and a tax free component.

The taxpayer requested that the untaxed element be taxed concessionally, as if they had reached the age of 60 when they received the lump sum.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 301-C

Income Tax Assessment Act 1997 Section 301-95

Income Tax Assessment Act 1997 Section 301-105

Reasons for decision

Summary

The tax treatment of an element untaxed in a fund is determined by subdivision 301-C of the Income Tax Assessment Act 1997 (ITAA 1997). The Commissioner does not have any discretion to alter the rate of income tax prescribed by the legislation.

Detailed reasoning

Tax treatment of the untaxed element

If a taxpayer is 60 years or over when they receive a superannuation lump sum from a superannuation plan, the tax treatment of an element untaxed in the fund is outlined in section 301-95 of the ITAA 1997.

According to sections 301-95:

(1) If you are 60 years or over when you receive a superannuation lump sum from a superannuation plan, the element untaxed in the fund of the lump sum is assessable income.

(2) You are entitled to a tax offset that ensures that the rate of income tax on the amount mentioned in subsection (3) does not exceed 15%.

(3) The amount is so much of the element untaxed in the fund as does not exceed your untaxed plan cap amount for the superannuation plan at the time you receive the benefit.

If a taxpayer is under 60 years but has reached their preservation age when they receive a superannuation lump sum from a superannuation plan, the tax treatment of an element untaxed in the fund is outlined in section 301-105 of the ITAA 1997.

According to section 301-105:

(1) If you are under 60 years but have reached your preservation age when you receive a superannuation lump sum from a superannuation plan, the element untaxed in the fund of the lump sum is assessable income.

(2) You are entitled to a tax offset that ensures that the rate of income tax on the amount mentioned in subsection (3) does not exceed 30%.

(3) The amount is so much of the element untaxed in the fund as does not exceed your untaxed plan cap amount for the superannuation plan at the time you receive the benefit.

(4) If you are entitled to one or more tax offsets under subsection (2) for superannuation benefits that you receive in an income year, you are entitled to a tax offset that ensures that the rate of income tax on the amount worked out under subsection (5) does not exceed 15%.

(5) The amount is so much of the total of the one or more amounts worked out under subsection (3) as does not exceed your low rate cap for the income year.

(6) If you are also entitled to a tax offset under subsection 301-20(2) for the income year, reduce your low rate cap amount for the purposed of subsection (5) of this section for the income year by the amount mentioned in subsection 301-20(3).

The legislation is quite specific. The taxpayer is entitled to an offset in both circumstances but the actual amount of the offset will not be the same. The law is very clear in stating that the only factor that determines whether the offsets under section 301-95 or the offsets under section 301-105 of the ITAA 1997 must be applied is the age of the taxpayer. As such, extraneous matters, such as the taxpayer's personal circumstances, cannot be taken into account in determining the tax treatment of the untaxed element.

Furthermore, there is no discretion under subdivision 301-C of the ITAA 1997 or anywhere else in the tax legislation that would allow the Commissioner to alter the rate of income tax prescribed by sections 301-95 and 301-105 of the ITAA 1997. For the purpose of these sections, there is also no discretion in the tax legislation that would allow the Commissioner to treat a taxpayer as being of a certain age when they are not.

In the taxpayer's situation, as they were under 60 years of age but over their preservation age of 55 when they received the superannuation lump sum from the Fund, the tax treatment of the untaxed element will be governed by section 301-105 of the ITAA 1997 and not by section 301-95 of the ITAA 1997.