How payments are taxed
A payment must be made as a super lump sum payment. These payments are non-assessable non-exempt income (that is, tax-free), if the member has the required medical certification stating that a terminal medical condition existed either:
- at the time of the payment
- within 90 days of receiving the payment.
Lump sum payments to a member with a terminal medical condition will be tax-free if paid from a complying super plan or an annuity provider (as long as the certification requirements are met).
A complying super plan is either a:
- complying super fund
- public sector super scheme that is either
- a regulated super fund
- an exempt public sector super scheme
- complying approved deposit fund
- retirement saving account (RSA).
Other credit balances
When a member applies for early release of super benefits due to having a terminal medical condition, you should also check for any ATO-held super and arrange for these amounts to be transferred. ATO-held super may come from:
- super co-contributions
- super guarantee
- super holding account special account
- unclaimed super money.
Alternatively, the member can lodge a request with us for certain eligible amounts to be paid directly to them.
Making a tax-free super payment
If the early release of benefits is approved, you should make a super lump sum payment upon receipt of the required medical certification.
You do not withhold any amounts from these payments.
You do not need to provide the member with a payment summary, as these amounts are non-assessable non-exempt income.
You do not need to report the payment to us
You are not required to report these payments to us, as these amounts are non-assessable non-exempt income.
If your member requests a rollover of their benefits during the certification period, different reporting requirements may apply.
Members must give you their medical documentation, certifying their terminal medical condition as outlined above, before you can make a tax-free super lump sum payment.
Making a payment under another condition of release
If you have paid a super lump sum to a member under another condition of release and you have withheld an amount, but the member now provides medical certification that confirms they have a terminal medical condition, they may be eligible to receive a refund of the amount withheld.
They should provide you with the required medical certification stating that at the time of the payment, or within 90 days of receiving the payment, they had a terminal medical condition.
To refund the amount withheld, you need to:
- provide the member with a tax-free payment of the amount that was withheld from the original super lump sum
- adjust the amount withheld downwards in your next activity statement payment period by the amount repaid.
If the member is applying after 21 July of the financial year following the payment, advise them to apply directly to us for a refund. They will need to provide a copy of their payment summary (if you provided one to them), and evidence of their medical certification.
A request for a refund can be sent to us by
- faxing it to 1300 669 846
- mailing it to:
Australian Taxation Office
PO Box 3100
PENRITH NSW 2740
Rolling over between super funds
Benefits accessed by members under this condition of release can be taken as tax-free lump sums.
Although members may roll them over between super funds in accordance with Superannuation Industry (Supervision) Regulations 1994, these amounts are not 'roll-over superannuation benefits' for the purposes of income tax legislation.
The practical tax consequences are that the:
- member is deemed to have been paid a tax-free lump sum
- paying fund is treated as having paid a benefit to the member for income tax purposes
- receiving fund is treated as having received a personal contribution from the member
- member's personal contribution is counted towards their concessional or non-concessional contributions cap, depending on whether and to what extent they have claimed a deduction (if eligible) for their contribution.
When the certification period expires
Once the certification period expires, any benefits held by a member (including amounts accrued during the certification period) are no longer subject to the 'terminal medical condition' condition of release and may be rolled over as normal.
Benefits accrued during the certification period retain their unrestricted non-preserved status.
If a member provides you with new medical certification that meets this condition of release, the rollover restrictions will apply again.
Information for super funds about making tax-free lump sum payments to members with a terminal medical condition.