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Edited version of your written advice
Authorisation Number: 1012826448028
Date of advice: 22 June 2015
Ruling
Subject: Superannuation lump sum benefit - terminal medical condition
Question
Does the Deceased 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 the lump sum payment received by the Deceased from a superannuation fund?
Answer
Yes.
This ruling applies for the following period
Year ending 30 June 20XX
The scheme commenced on
1 July 20XX
Relevant facts and circumstances
The Deceased died after a long battle with illness.
You have provided a copy of a medical report dated during the relevant income year from the doctor who was treating the Deceased whilst they were receiving palliative care treatment. The report states that the Deceased's survival time, in the doctor's opinion, will be less than twelve months.
You have also provided a copy of a medical report dated during the relavent income year from another doctor who has a detailed knowledge of the Deceased's extensive health conditions. The report states that, in this doctor's opinion, the Deceased's life expectancy now would be best estimated in months to one year.
The Deceased held an account with a Complying Superannuation Fund (the Fund).
During the relevant income year, the Deceased completed and submitted applications requesting the Fund provide an early release of their preserved benefit on the grounds of invalidity.
The Fund approved the release of the Deceased's preserved benefit and made payment lump sum payment during the relevant income year.
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
The lump sum benefit received by the Deceased from the Fund is a superannuation lump sum member benefit that meets the requirements of a terminal medical condition in regulation 303-10.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997).
Consequently, the superannuation lump sum is not assessable income and is not exempt income. That is, it is tax-free.
Detailed reasoning
Section 303-10 of the ITAA 1997 outlines 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:
(a) is a superannuation lump sum; and
(b) is:
(i) paid from a complying superannuation plan; or
(ii) a superannuation guarantee payment, a small superannuation account payment, an unclaimed money payment, a superannuation co-contribution benefit payment or a superannuation annuity payment.
(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 a lump sum benefit from a superannuation fund because they were a member of that fund. As such, the lump sum payment is a superannuation member benefit.
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 twelve months after the date of the certification. At the time of the payment, the certification period had not ended.
Consequently it is considered that in accordance with section 307-10 of the ITAA 1997, the lump sum payment received by the Deceased from the Fund is not assessable income and is not exempt income. That is, it is tax-free.