Taxation Ruling
IT 2335
Income tax: premature release of benefits from a section 23FB or paragraph 23(JA) superannuation fund
-
Please note that the PDF version is the authorised consolidated version of this ruling and amending notices.This document is no longer current as has been Archived.View the Archival notice for this document.This document has been Withdrawn.View the Withdrawal notice for this document.
FOI status:
Edited for FOI purposesFOI number: I 1209686PREAMBLE
Section 23FB exempts from income tax the income of superannuation funds established for persons engaged in any business, trade, profession, vocation, calling, occupation or employment. To be eligible for exemption the fund must be an indefinitely continuing fund established and maintained solely for the purpose of providing superannuation benefits for members in the event of their retirement and/or for their dependants in the event of the member's death, or for such ancillary and incidental purposes as the Commissioner approves.
2. Sub-paragraph 23FB(2)(f)(i) provides that benefits may generally not be paid prior to a member attaining 55 years of age. Benefits may be paid earlier, however, in the event of the death, sickness or permanent incapacity for work of the member or in such other circumstances as the Commissioner considers appropriate.
3. Paragraph 23(ja) exempts the income of funds established for the benefit of persons other than employees. For a fund to qualify for exemption under this section there must be at least twenty persons entitled to receive present or future benefits (otherwise than as a spouse, child or dependant of a member) and the terms and conditions of the fund must be approved by the Commissioner having regard to certain specified factors. As a practical measure the terms and conditions generally expected by the Commissioner for the conduct of paragraph 23(ja) funds run parallel to the requirements for section 23FB funds.
4. The purpose of this Ruling is to indicate the "other circumstances" in which the release of benefits before the age of 55, i.e. the premature release of benefits, from section 23FB or paragraph 23(ja) will generally be considered appropriate.
RULING
5. In approaching the circumstances in which the payment of benefits from a section 23FB or paragraph 23(ja) fund before the age of 55 years would be appropriate it is necessary to keep in mind that the concessions provided in the income tax law for superannuation funds and for contribution to superannuation funds reflect the intention of Governments to encourage long-term systematic saving for retirement. Superannuation arrangements are more than mere savings accounts - they offer special features such as financial protection in the event of death or incapacity, security in retirement and a long-term contractual structure of savings flows. It is important, therefore, that the circumstances in which approval is given for the early release of benefits should be consistent with the purpose of superannuation funds and the legislative encouragement to them.
6. Premature release of benefits will generally be appropriate where:-
- (a)
- a member establishes that he or she will be leaving Australia permanently;
- (b)
- a member retires before age 55, there is no likelihood of resuming active employment or gainful occupation and it is evident that the member's financial position is such that refusal to release the benefits would cause hardship on the member or dependants;
- (c)
- a member is able to demonstrate that he or she has incurred expenses through sickness, accident or other misfortune beyond his or her control and which would cause severe financial hardship if paid by the member from sources other than amounts withdrawn from the fund.
7. It will generally be a simple matter for a member to establish that he or she will be leaving Australia permanently. Evidence of transport arrangements, the disposal of property in Australia, proposed arrangements in the intended country of residence, etc. should be readily available. Where a trustee of a fund is satisfied that the member is to leave Australia permanently, a release of the member's accrued benefit may be made without the necessity to seek specific approval from this office.
8. Whether or not there is any likelihood that a member who has retired before age 55 will resume actual employment or gainful occupation is a question of fact to be decided in each case. Factors to be borne in mind would include the member's age, the former trade or profession, state of health, stated intentions, etc. Whether refusal to release the benefit would result in financial hardship will similarly turn upon the particular factual situation. Requests for release of benefit on this basis should be directed to the Deputy Commissioner in whose area the taxpayer resides. In seeking release of benefits on this basis a member does not need to establish permanent incapacity for work. If a trustee is satisfied of a member's permanent incapacity for work, release of a benefit may be made without reference to this office.
9. It has been the practice in the past to accept that a female member who married after joining the fund and later left employment to raise a family and keep house, etc. was entitled to a premature release of benefit on the grounds of permanent withdrawal from the workforce notwithstanding that possible financial hardship had not been established. The practice did not apply if the member was married prior to joining the fund. In this day and age it is no longer possible to make a blanket assumption that females withdrawing from the workforce to raise a family, etc. will not return to the workforce. From the date of this Ruling approval for the early release of benefits in these circumstances will no longer be automatic. The applicant will be required to establish permanent withdrawal from the workforce.
10. A member who is seeking release of benefits on the basis of ground (c) set out in paragraph 6 above may not necessarily have ceased employment or gainful occupation totally. Often he or she will have moved from one position to another, lower paid, position. In the first place the member must establish that he or she has incurred expenses through sickness, accident or other misfortune beyond his or her control. The type of misfortune envisaged would include events such as unemployment following retrenchment, the sickness or accident of a dependant, the unexpected cancellation of agency, distributing rights, etc. and similar occurrences. The incurring of gambling debts or debts relating to income tax and similar liabilities would not be grounds for early release of benefits under ground (c). A member who has suffered no particular misfortune and seeks funds to meet normal living expenses would not be regarded as satisfying the requirements for premature release of benefit.
11. It is also necessary for a member seeking release on the basis of ground (c) to establish that severe financial hardship would follow if the expenses were paid from other sources. While the question is essentially one to be determined by this office on the facts of each case, the following examples may be useful as a guide:-
- (a)
- A member seeks release of benefits from two section 23FB funds. The value of the benefit is $3,600. He is 30 years of age and has a dependent wife and daughter. The member was a professional sportsman but, due to family commitments, retired and took up a supervisory position with a company. He joined the company's superannuation fund after serving a qualifying period. His gross weekly earnings amount to $425. His commitments are $140. In the circumstances, the request for premature release of benefits would not be approved as the member is not in financial hardship.
- (b)
- A member seeks release of benefits from a section 23FB fund. The value of the benefits is $2,500. He is 34 years of age and has a dependent wife and two dependent children. His current weekly earnings are $420. Weekly expenditure amounts to $230 plus general living expenses. He has $4,000 in the bank. He is currently contributing to his employer's superannuation fund. He claims he is in financial difficulty due to a substantial drop in family earnings (from $39,500 in one year to $21,800 in the next). Although the drop in family earnings may have caused a drop in living standards the member is not in financial hardship to such an extent that the premature release of benefits would be approved.
- (c)
- A member seeks approval for the premature release of his benefit in a section 23FB fund. The benefit has a value of $2,800. He is 38 years old and is married with one dependent child. He was retrenched from his job and is currently living on unemployment benefits. If he is unable to find employment soon he may be forced to sell his house. He and his wife have a combined family income of $210 per week. Weekly expenditure amounts to $290. The member has assets, including the home, valued at $80,000. Liabilities amount to $26,600. The proceeds of the policy are sought to pay off a loan. It is accepted that the member is in financial hardship and the request for premature release of benefits would be approved.
- (d)
- A member seeks release of benefits in two superannuation funds. The value of the benefits is $4,300. He is 51 years of age and has a dependent wife. He was employed as a skilled tradesman but was retrenched at short notice and is currently living on unemployment benefits. Due to his age and a shortage of employment in the area in which he resides his future employment prospects are bleak. His financial difficulties are primarily caused by difficulty in meeting repayments on a loan he took out shortly prior to his retrenchment. His income consists solely of the unemployment benefit. Weekly expenditure amounts to $200 (including $55 for repayment of the loan). Apart from his equity in a house his assets amount to $8,000. In the circumstances, approval would be given for the premature release of the benefit.
- (e)
- A member seeks premature release of benefits in a section 23FB fund. The value of the benefits is $20,000. He is 41 years of age with a wife and two dependent children. He had resigned his employment and went into private enterprise. He subsequently rolled over his benefit in the employer's superannuation fund to a section 23FB fund. Due to illness he moved to a new city where he commenced temporary work at a substantially lower level of income than previously. He and his wife have a current combined family income of $600 per week. Weekly expenditure amounts to $900, including an amount payable for rent and substantial housing loan repayments. The private dwelling owned by the member is on the market and is not available for renting. In the circumstances, it is clear that while the member is suffering financial hardship, this is a temporary situation. Generally approval for the premature release of benefits would be withheld in these circumstances.
12. A member seeking a premature release of benefit should approach the trustee of the particular fund in the first instance. If, in accordance with this Ruling, the member's circumstances are such that the decision to release or not to release is a matter for the trustee, it is the trustee of the fund, and not this office, who should make the decision. Where the final decision is one for this office, the member may be advised to approach the Deputy Commissioner at whose office his or her returns are lodged. The following information should be supplied in support of the application for release of benefits:-
- (a)
- his/her date of birth;
- (b)
- number of dependants, and ages of any children;
- (c)
- a summary of family earnings for the three previous financial years;
- (d)
- the rate of his/her gross weekly earnings;
- (e)
- details of present weekly commitments;
- (f)
- details of family assets and liabilities;
- (g)
- the name of the fund from which release is sought;
- (h)
- the present value of the benefit; and
- (i)
- the circumstances which have resulted in the member seeking a release of the benefit.
14. Fund trustees should not advise members to approach the Taxation Office seeking a release of benefit in circumstances where the trust deed governing the particular fund itself precludes the release. Quite clearly this is an area where any determination made by the Commissioner would be irrelevant. Similarly, a member should not be advised to approach this office where his or her circumstances plainly fall outside the scope of "other circumstances" set out in this Ruling. By way of example, this office would not entertain a request for release based on the grounds that the member was now enjoying employer-supported superannuation and hence no longer had any need for the former, self-funded, superannuation arrangement. The co-operation of fund trustees in this regard would assist in ensuring that genuine applications are dealt with as speedily as possible.
15. It will be appreciated that an amount received by a member as a premature release of benefit in accordance with approved terms and conditions governing the fund will fall within the definition of eligible termination payments and will be liable for assessment in terms of Sub-division AA of Division 2 of Part 3 of the Act. Amounts paid other than in accordance with approved terms and conditions will fall for assessment in terms of section 26AF.
16. On 11 June 1986 the Government announced the creation of an Occupational Superannuation Commissioner who will be responsible for oversighting the operational standards for superannuation funds. It is expected that decisions now made by the Commissioner of Taxation in relation to the release of benefits will become the responsibility of the Occupational Superannuation Commissioner.
COMMISSIONER OF TAXATION
9 July 1986