Edited version of private advice

Authorisation Number: 1052333181685

Date of advice: 18 November 2024

Ruling

Subject: Pension transfer bonus

Question

Does the allocation of the Pension Transfer Bonus (PTB) by the taxpayer (the Fund) to a member's account constitute an assessable income of the Fund under section 295-160 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following periods:

A number of income years

The scheme commenced:

During an income year

Relevant facts and circumstances

All legislative references are to the ITAA 1997 unless otherwise specified.

Background

1.    The Fund is a complying superannuation fund managed by a trustee company.

2.    Unit prices are calculated daily by the Fund and include a tax provision to reflect current tax expense/benefit on realised capital gains/losses and deferred tax expense/benefit on unrealised capital gains/losses for accumulation phase investment options.

3.    The tax provision is not allocated against a reserve account and there is no cash set aside by the Fund for the funding of future tax liabilities.

4.    A reconciliation of the daily accrual of deferred tax liability (DTL) or deferred tax asset (DTA) reflected in unit pricing is performed periodically against tax reporting data for each asset class.

5.    For financial reporting purposes, the DTL or DTA is recorded in the Statement of Financial Position pursuant to accounting standard AASB 112 Income Taxes.

6.    The Fund's trust deed does not require any DTL/DTA provision to be allocated to or from a reserve account.

The PTB

7.    The purpose of the PTB is to compensate eligible members who move from the accumulation phase or transition to retirement (TTR) to the pension phase for a proportion of the reduction in the Fund's DTLs arising from this transition.

8.    The inputs and methodology used to calculate the PTB amount are representative of a member's eligible investment options during the accumulation phase, the value of account balance transferred to the pension phase, the duration of membership and the Fund's DTL position.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 295-160

Does IVA apply to this private ruling?

No.

Reasons for decision

All legislative references are to the ITAA 1997 unless otherwise indicated.

Table item 1 of section 295-160 provides that the assessable income of a complying superannuation fund (such as the Fund) in a year of income includes contributions received by it to provide superannuation benefits for someone else, except a contribution that is a roll-over superannuation benefit.

In determining whether the PTB is assessable income of the Fund for the purposes of table item 1 of section 295-160, it is necessary to first consider whether it is a contribution.

There is no definition of 'contribution' in the ITAA 1997. The Commissioner's view of the ordinary meaning of contribution in the context of a superannuation fund in the ITAA 1997 is provided in Taxation Ruling TR 2010/1 Income tax: superannuation contributions.

Paragraph 4 of TR 2010/1 states:

In a superannuation context a contribution is anything of value that increases the capital of a superannuation fund provided by a person whose purpose is to benefit one or more particular members of the fund or all the members in general.

Increase to the capital of the Fund

Paragraph 10 of TR 2010/1 states:

The capital of a superannuation fund may be increased directly by:

•                    transferring funds to the superannuation provider

•                    rolling over a superannuation benefit from another superannuation fund

•                    transferring an existing asset to the superannuation provider (an in specie contribution)

•                    creating rights in the superannuation provider (also an in specie contribution), or

•                    increasing the value of an existing asset held by the superannuation provider.

Further, paragraph 11 of TR 2010/1 states:

The capital of a superannuation fund can also be increased indirectly by:

•                    paying an amount to a third party for the benefit of the superannuation provider

•                    forgiving a debt owed by the superannuation provider, or

•                    shifting value to an asset owned by the superannuation provider.

The PTB is referrable to members' past investment returns as it is a reversal of the earlier discounting of investment returns, that is, the provision for income tax liability in relation to unrealised capital gains that accrued to the Fund prior to members commencing their pension (i.e., DTL).

The PTB subsequently allows a portion of the value attributed to the reduction in the DTL to be allocated to the relevant member at the time of commencement of a superannuation income stream that is in the retirement phase.

The Fund as a whole is in the same net asset position regardless of the PTB. The PTB merely acts to ensure a more fair and equitable allocation of tax between members.

The PTB does not fall within any of the categories listed in paragraphs 10 and 11 of TR 2010/1 and as such, does not constitute a direct or indirect increase to the capital of the Fund. On this basis, the PTB is not a contribution and thus does not satisfy the requirements in table item 1 of section 295-160.

For reasons outlined above, the allocation of a PTB by the Fund to a member's account does not constitute an assessable contribution and as such does not form part of the assessable income of the Fund under table item 1 of section 295-160.