Taxation Ruling
IT 2393
INCOME TAX : ELIGIBLE TERMINATION PAYMENT : ARRANGEMENT TO INCREASE LUMP SUM SUPERANNUATION BENEFIT
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FOI status:
May be releasedFOI number: I 1210710PREAMBLE
Sub-section 27A(1) of the Income Tax Assessment Act defines an eligible termination payment to include any payment made from a superannuation fund in respect of the taxpayer by reason that the taxpayer is or was a member of the fund.
2. Section 27B operates to exclude from tax any part of an eligible termination payment which represents undeducted contributions. "Undeducted contributions" means so much of an eligible termination payment which consists of contributions which have been paid by the taxpayer or any other person (other than an employer of the taxpayer) after 30 June 1983 to a superannuation fund to obtain superannuation benefits and which have not been allowed as an income tax deduction.
3. An eligible termination payment may be rolled over into an approved deposit fund or a superannuation fund. Any undeducted contributions included in a roll-over payment retain their identity and are tax-free when repaid to the taxpayer at a later date.
4. In a situation recently drawn to the attention of this Office a member of a superannuation fund sought to deposit a substantial amount of money with the superannuation fund in the final month of his employment. The member did not seek any superannuation benefits or interest from the fund in respect of the additional deposit. The sole purpose of the arrangement was to obtain certain taxation advantages, i.e., the deferring of liability to tax on the interest accruing on the additional deposit. Upon retirement the ordinary lump sum benefit payable by the fund would be increased by the member's additional deposit. It was suggested by the member that the total payment received would qualify as an eligible termination payment which could be rolled over into an approved deposit fund. Interest would accrue on the additional deposit in the approved deposit fund but the member would not be liable for tax on the interest until it is paid out of the fund at a later date.
RULING
5. It is the view of this Office that the repayment to the member of the additional deposit made immediately prior to retirement would not qualify as an eligible termination payment in terms of sub-section 27A(1) and, in the result, would not be eligible to be rolled over into an approved deposit fund.
6. The reason for the views expressed in the preceding paragraph is that the deposit refunded to the member cannot be characterised as a payment from a superannuation fund in respect of the member by reason of his or her being a member of the fund. The additional deposit made by the member was not intended to be used by the trustee of the fund for the provision of superannuation benefits. It is most unlikely that the deposit would form part of the superannuation fund, i.e., the assets available for superannuation purposes. In this context the repayment could not be payment from a superannuation fund - it would be a payment of a capital amount by the trustee in satisfaction of an arrangement entered into between the member and himself outside the provision of superannuation benefits.
7. The situation should not be confused with arrangements which operate in some superannuation pension schemes where members are permitted to make lump sum contributions to obtain additional superannuation pension benefits on retirement. Often the schemes provide for pension entitlements on retirement to be commuted to a lump sum or for a payment to be made of the residual capital value of the pension. In these situations, as distinct from the situation to which the preceding paragraphs refer, the lump sum contributions by the members are made to obtain superannuation benefits. In terms of section 27B it follows that, where the member receives a lump sum payment in lieu of pension entitlements only that part of the payment in excess of the unused undeducted purchase price qualifies as an eligible termination payment. In other words, any lump sum payment made by the member in excess of the amount allowed as an income tax deduction is excluded from the eligible termination payment and is not eligible to be rolled over.
COMMISSIONER OF TAXATION
9 April 1987