Edited version of your written advice

Authorisation Number: 1012863001267

Date of advice: 7 September 2015

Ruling

Subject: The crystallised segment of a superannuation interest.

Question

Does the superannuation interest of each member of the SMSF contain a crystallised segment?

Answer

Yes.

This ruling applies for the following period:

Income year ended 30 June 2014

The scheme commences on:

1 July 2013

Relevant facts and circumstances

Member A and Member B are members of the SMSF.

In order to lodge the SMSF's tax return for the 2013-14 income year, the SMSF must calculate the tax free component of each member's interest in the fund. In order to do this, the SMSF must determine the crystallised segment for each member.

As at 30 June 2007, Member A's superannuation interest contained a certain amount of undeducted contributions.

Member A's eligible service period commenced some time after 1 July 1983.

Member A had not been terminated from employment for reasons of disability, physical incapacity, or mental incapacity at any time prior to 30 June 2007.

Member A had not received any bona fide redundancy payments before 1 July 1994.

Member A had not received any approved early retirement payments before 1 July 1994.

Member A had not made any contributions to the SMSF under the small business retirement exemption at any time prior to 30 June 2007.

As at 30 June 2007, Member B's superannuation interest contained a certain amount of undeducted contributions.

Member B's eligible service period commenced some time after 1 July 1983.

Member B had not been terminated from employment for reasons of disability, physical incapacity, or mental incapacity at any time prior to 30 June 2007.

Member B had not received any bona fide redundancy payments before 1 July 1994.

Member B had not received any approved early retirement payments before 1 July 1994.

Member B had not made any contributions to the SMSF under the small business retirement exemption at any time prior to 30 June 2007.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 27A(1) (Repealed by No 15 of 2007)

Income Tax Assessment Act 1997 Subdivision 307-D

Income Tax Assessment Act 1997 Section 307-210

Income Tax Assessment Act 1997 Section 307-225

Income Tax Assessment Act 1997 Subsection 307-225(2)

Income Tax Assessment Act 1997 Subsection 307-225(4)

Reasons for decision

Summary

Both Member A and Member B's superannuation interest contains a crystallised segment.

Detailed reasoning

Components of a superannuation interest

A superannuation interest is made up of two components: a tax-free component and a taxable component. Subdivision 307-D of the Income Tax Assessment Act 1997 (ITAA 1997) defines the various components of a superannuation interest.

Tax-free component

Section 307-210 of the ITAA 1997 states that the tax-free component consists of the contributions segment and the crystallised segment.

The contributions segment consists of all contributions made after 30 June 2007 which have not been included in the assessable income of the superannuation fund.

The crystallised segment of a superannuation interest is defined in section 307-225 of the ITAA 1997 as follows:

(1) To work out the crystallised segment of a superannuation interest, first assume that:

(a) an eligible termination payment had been made in respect of the holder of the interest just before 1 July 2007; and

(b) the amount of the eligible termination payment had been equal to the value of the interest at that time.

(2) The crystallised segment of the superannuation interest is so much of the value of the interest as consists of the total of the following components of the eligible termination payment:

(a) the concessional component;

(b) the post-June 1994 invalidity component;

(c) the undeducted contributions;

(d) the CGT exempt component;

(e) the pre-July 83 component.

According to subsection 307-225(4) of the ITAA 1997, the meaning of the terms in subsection 307-225(2) of the ITAA 1997 above have the same meaning as in subsection 27A(1) of the Income Tax Assessment Act 1936 (ITAA 1936) as in force just before 1 July 2007.

The crystallised segment

The concessional component in relation to an eligible termination payment means so much of the eligible termination payment as consists of, or is attributable to:

• A bona fide redundancy payment made before 1 July 1994;

• An approved early retirement scheme payment made before 1 July 1994; or

• An invalidity payment made before 1 July 1994

According to the facts of the case, neither member had received a bona fide redundancy payment or an approved early retirement payment before 1 July 1994. In addition, as neither member had been terminated from employment for reasons of disability, physical incapacity, or mental incapacity at any time prior to 30 June 2007, no amount of the eligible termination payment could be attributable to an invalidity payment made before 1 July 1994.

As such, the concessional component for both members is nil.

As neither member had been terminated from employment for reasons of disability, physical incapacity, or mental incapacity at any time prior to 30 June 2007, the post-June 1994 invalidity component for both members is also nil.

The facts of the case indicate that, as at 30 June 2007, Member A's superannuation interest contained a certain amount of undeducted contributions while Member B's superannuation interest contained a different amount of undeducted contributions

The CGT exempt component of an eligible termination payment refers to the exempt amount which was contributed to the superannuation fund under the small business retirement exemption in subdivision 152-D of the ITAA 1997. As neither member have made any such contributions at any time prior to 30 June 2007, the CGT exempt component for both members is nil.

The amount of the pre-July 83 component is directly proportional to the number of whole days in the eligible service period of a member that occurred before 1 July 1983. Since both member's service periods commenced after 1 July 1983, the pre-July 83 component for both members is nil.

Based on the above analysis, the crystallised segment of each member's superannuation interest is calculated in accordance with the table below.