Edited version of your written advice

Authorisation Number: 1012858171229

Date of advice: 12 August 2015

Ruling

Subject: Superannuation benefit - disability

Question

Can the tax free component of the superannuation lump sum be further increased by applying the modification for disability benefits?

Answer

No

This ruling applies for the following periods:

The income year ended 30 June 20XX.

The scheme commences on:

1 July 20XX.

Relevant facts and circumstances

You have been a member of a superannuation fund (the Fund) for some time.

As the result of a workplace accident you suffered various physical injuries.

Your physical injuries were exacerbated by a mental disability.

You were employed prior to your workplace accident. You stopped working because you were no longer able to perform your duties due to your ill health.

A medical practitioner, in a report relating to you, stated:

(The Taxpayer) has not worked in any meaningful employment for over 6 months and in my opinion is permanently incapacitated to such an extent as to render them unlikely to ever again engage in any meaningful or gainful occupation or business or profession or employment for which they are suitably experienced and trained.

You lodged a claim for a Total and Permanent Disablement (TPD) Insurance Benefit in respect of your fund membership.

You received confirmation from the Fund that your TPD benefit had been approved and is ready to be paid.

You received a letter from your Fund finalising the release of the TPD benefit. Subsequently, you received a TPD benefit.

You confirmed that the modification for disability superannuation benefits had been applied by the Fund to the TPD benefit. You also provided correspondence from the Fund showing that the tax-free component of the lump sum payment was increased and you stopped being gainfully employed on a particular date.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 307-120.

Income Tax Assessment Act 1997 section 307-145.

Income Tax Assessment Act 1997 section 995-1.

Reasons for decision

Summary

Based on the information provided, the Fund has already applied the modification for disability superannuation benefits to the lump sum payment. We have confirmed that the Fund has correctly applied the modification. As a result, the tax free component cannot be increased further.

Detailed reasoning

Disability superannuation benefit

A disability superannuation benefit is defined under subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) as follows:

disability superannuation benefit means a superannuation benefit if:

(a) the benefit is paid to a person because he or she suffers from ill-health (whether physical or mental); and

(b) 2 legally qualified medical practitioners have certified that, because of the ill-health, it is unlikely that the person can ever be gainfully employed in a capacity for which he or she is reasonably qualified because of education, experience or training.

If a person receives a disability superannuation benefit as a superannuation lump sum, the tax free component of the benefit is increased to broadly reflect the period where they would have expected to have been gainfully employed (that is, their future employment service period).

The above is referred to as the modification for disability superannuation benefits if the benefit is a superannuation lump sum and a disability superannuation benefit.

Medical certification for disability superannuation benefits

You have only provided one medical report from a legally qualified medical practitioner which meets the requirements of a disability superannuation benefit as defined in subsection 995-1(1) of the ITAA 1997.

As two medical reports are required, it cannot be established that the superannuation lump sum payment you received is a disability superannuation benefit. Nonetheless, as you have advised that the Fund has already applied the modification for disability superannuation benefits we will review their calculation to see if the tax free component of the lump sum has been calculated correctly.

Superannuation benefit

A superannuation benefit includes a superannuation fund payment made to you from a superannuation fund because you are a fund member. When it is paid to you as a lump sum, this is referred to as a superannuation lump sum payment.

The components of a superannuation benefit are worked out under section 307-120 of the ITAA 1997 and will consist of the tax free component and the taxable component.

Modification for disability superannuation benefits

Under section 307-145 of the ITAA 1997, where a person receives a disability superannuation benefit as a superannuation lump sum, the tax free component of the benefit is increased to broadly reflect the period where they would have expected to have been gainfully employed.

As you have advised that the payment of the superannuation lump sum from the Fund has already had the modification for disability benefits under section 307-145 of the ITAA 1997 applied, we will review their calculation to see if the increase of the original tax-free component has been done correctly.

The tax free component of the superannuation lump sum payment you received was a certain amount. Based on our calculation it appears that the Fund has calculated the modification correctly.

Accordingly, the tax free component cannot be increased further.