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Edited version of your written advice
Authorisation Number: 1013029947470
Date of advice: 22 June 2016
Ruling
Subject: Protected Capital Benefits
In view of privacy and commercial in-confidence issues in respect of this private ruling, the following summary is provided.
The Commissioner ruled that:
• Protection Payments received by the Trustee will not be assessable under section 230-15 of the Income Tax Assessment Act 1997 (ITAA 1997).
• Protection Payments received by the Trustee will not be assessable under section 6-5 of the ITAA 1997.
• The totality of rights conferred to the Trustee in relation to an Individual Contract is a CGT asset under section 108-5 of the ITAA 1997.
• The date the relevant capital gains tax (CGT) asset (being the totality of rights referred to above in relation to an Individual Contract) is acquired under section 109-5 of the ITAA 1997 is taken to be the date that an Individual Contract is created.
• The receipt of a Protection Payment by the Trustee that is referrable to a particular Individual Contract is a CGT event C2 which happens to that CGT asset for the purposes of section 104-25 of the ITAA 1997.
• The cessation of an Individual Contract that has resulted from the lapse, expiration or other early termination of the capital investment protection will give rise to CGT event C2 and is considered to be a full disposal of a CGT asset.
• Protection Fees paid by the Trustee that are referrable to a particular Individual Contract form part of the CGT cost base under section 110-25 of the ITAA 1997 for the CGT asset that is representative of the Trustee's rights under that Individual Contract.
• Protection Fee paid under a particular Individual Contract will not be included in the reduced cost base, as defined in section 110-55 of the ITAA 1997, of the CGT asset that is representative of the Trustee's rights under that Individual Contract.
• Section 115-5 of the ITAA 1997 will apply to discount any capital gain that arises to the Trustee upon the occurrence of a Payment Event under the terms of the agreement provided that the Trustee's rights under an Individual Contract were acquired at least 12 months before the CGT event.
• The Protections Payments received by a Trustee and credited to a Member's pension account balance, constitute a continuation of the existing income stream benefit for the purposes of section 307-70 of the ITAA 1997.
• The Individual Contract that is held by the Trustee to discharge its current or future liabilities in relation to currently payable superannuation income stream benefits constitutes a segregated current pension asset pursuant to section 295-385 of the ITAA 1997.
• The Individual Contract satisfies the condition in paragraph 295-385(3)(a) and subsection 295-385(4) of the ITAA 1997 when the relevant Member enters the pension phase as a single superannuation income stream exists.