Edited version of private advice

Authorisation Number: 1052193364375

Date of advice: 18 January 2024

Ruling

Subject: Superannuation court payments

Question 1

Is the Payment that was transferred to the client's bank account for outstanding superannuation subject to capital gains tax?

Answer

Yes. The Payment does not have the characteristics of ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), such as being relied upon, regular or repeated payments, it was not a payment for any service you had performed, or for any investment.

Rather it is capital in nature and consequently subject to the capital gains tax (CGT) provisions contained in Parts 3-1 and 3-3 of the ITAA 1997.

Question 2

Will the capital gains tax exemption under section 118-305 of the ITAA 1997 apply to the Payment?

Answer

Yes. An exemption is provided under section 118-305 of the ITAA 1997 for any capital gain or loss made from a CGT event happening in relation to a right to an allowance, annuity or capital amount payable out of a superannuation fund or an asset of a superannuation fund.

In your case, it is considered that the Payment you received was in relation to such a right, being a right to additional amount of super upon termination, that was guaranteed to you under the terms of the fund. Therefore, you can disregard any capital gain or loss made in relation to receiving the Payment.

This ruling applies for the following period:

Year ended in 2023

The scheme commenced on:

XX XX XXXX

Relevant facts and circumstances

You were employed by your employer (Employer).

You had a superannuation account with a Superannuation Company under a defined benefits scheme.

In month 20XX your employment there was terminated, and you decided to elect for a transfer of benefits believing that would be guaranteed an additional payment.

You believed you would receive an additional payment, as your Employer issued a guarantee representation that stated "You are guaranteed that the benefit payable on Retrenchment will not be less than which would have been payable under the defined benefits section of the Fund".

Your company did not agree that you were entitled to an additional payment, and you contacted legal representation.

On 25 January 2023 you entered into a Deed of Release to receive a payment which included the following:

•         The parties included your Employer, the Superannuation company and you.

•         You assert that you were owned an additional payment of super at the time of the termination super, your Employer and Superannuation company denied this, this assertion and denial resulted into a dispute.

•         You completed the transfer of benefits and did not receive the additional payment.

•         It was agreed that you would receive $XXX XXX in a lump sum and that you would release your Employer and Superannuation company from all claims.

You received the Payment during the ruling period.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 102-5

Income Tax Assessment Act 1997 section 108-5

Income Tax Assessment Act 1997 section 118-305