Edited version of private advice

Authorisation Number: 1051525148759

Date of advice: 11 June 2019

Ruling

Subject: Splitting order and lump sum payment

Question 1

Does a lump sum payment meet the definition of a Departing Australia Superannuation Payment in accordance with section 301-170 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

No.

Question 2

Is the lump sum payment under the splitting order taxable under the ITAA 1997? If so, what component is taxable and at what rate?

Answer 2

See 'Reasons for decision' for answer.

Question 3

Does the outcome of Question 2 change if the splitting order is:

a)    signed and the lump sum is paid before July 2019,

b)    signed before July 2019 but the lump sum is paid after July 2019.

Answer 3

See 'Reasons for decision' for answer.

This ruling applies for the following period:

The financial year ending 30 June 20XX

The scheme commences on:

July 20XX

Relevant facts and circumstances

An Australian citizen who is a superannuation fund member wishes to make a splitting order in settlement of family law property proceedings in favour of his former wife.

The Australian citizen's superannuation balance consists of:

·         Preserved amount

·         Restricted non-preserved amount

·         Unrestricted non-preserved amount

·         Taxable component - taxed

·         Taxable component - tax free

The ex-spouse will turn 65 years of age in mth/20XX. She is an overseas citizen and resident, and does not hold Australian citizenship and currently lives overseas.

The ex-spouse previously held a Permanent Residency visa (sub-class 100), but this has now lapsed. She has never worked in Australia.

Relevant legislative provisions

Family Law Act 1975 Part VIIIB

Income Tax Assessment Act 1997 section 301-10

Income Tax Assessment Act 1997 section 301-170

Reasons for decision

Departing Australia Superannuation Payment (DASP)

A temporary resident who has accumulated superannuation while working in Australia is eligible to claim the superannuation back when they leave Australia as a DASP.

A DASP has meaning given by section 301-170 of the ITAA 1997. It is a superannuation lump sum that:

a)    is paid to a person who has departed Australia, and

b)    is paid in accordance with the Superannuation Industry (Supervision) Regulations 1994 (SISR) (regulations 6.20A, 6.20B and 6.24A).

Generally, you can claim a DASP if the following apply:

·         You accumulated superannuation while working in Australia on a temporary resident visa issued under the Migration Act 1958,

·         Your visa has ceased to be in effect (it has expired or been cancelled),

·         You have left Australia

·         You are not an Australian or New Zealand citizen, or a permanent resident of Australia.

In this instance, the ex-spouse did not accumulate any superannuation while working in Australia on a temporary resident visa, as such, the DASP provisions do not apply, and the payment of the lump sum will not be a payment subject to DASP.

Splitting orders

From 28 December 2002, Part VIIIB was inserted into the Family Law Act 1975 to provide a regime for the splitting of superannuation interests or entitlements of spouses when a marriage breaks down in the same way that they can divide their assets by treating superannuation as 'property'.

The taxation consequences of a payment split after a court order is made, or a superannuation agreement is entered into for a lump sum payment to, or a superannuation interest created for a non-member spouse after a payment or interest split is treated as a separate superannuation benefit for the non-member spouse. The components of the benefit are split in the same proportions as the superannuation interest.

Capital gains or losses arising from the creation of rights when a superannuation agreement is entered into or terminated are disregarded.

Where there is a payment or interest split, both the member spouse and the non-member spouse are entitled to a share of the components of the member spouse's superannuation interest at the time the benefit is paid.

In this instance, the ex-spouse will receive a lump sum consisting of a taxed component and a tax free component.

The income tax consequences of the payment of the lump sum differ if an individual is above or below their preservation age, also whether the individual is below or above 60 years of age.

In this instance, the ex-spouse's preservation age is 55, as she was born before 1 July 1960.

In order for the ex-spouse to receive any superannuation benefit from the fund she must first meet a condition of release as outlined in Schedule 1 of the SISR.

One of the conditions of release is attaining age 65. A further condition of release is retirement. It is unclear from the facts if the ex-spouse is retired for the purposes of the SISR, as she would have to meet the definition of retirement which means ceasing full-time or part-time gainful employment.

Both of these conditions of release have a nil cashing restriction, which means the benefits can be paid as a lump sum or income stream.

As such, if the ex-spouse meets one of the conditions of release above then the trustee can pay the superannuation benefits, but if the ex-spouse does not meet a condition of release, then the superannuation interest must remain in the fund until a condition of release is met.

The taxation treatment of superannuation benefits is provided by the ITAA 1997.

You have advised that the ex-spouse is currently 64 years of age. Where an individual is over 60 years of age and receives a superannuation benefit, the benefit will be non-assessable and is non-exempt income (section 301-10 of the ITAA 1997).

The result will not change if the payment is made before or after the ex-spouse turns 65 years of age, so long as she meets a condition of release.

The matter of payment of the benefit to the ex-spouse to either an Australian or overseas bank account is an administrative question that should be directed to the superannuation fund. The superannuation legislation does not prescribe where the superannuation payment is to be paid to the individual.