Private ruling: Superannuation lump sum
Date of advice: 14 January 2016
Published: March 2016
Ruling period: Income year ended 30 June 20YY.
Date scheme commenced: 1 July 20XX.

Ruling: Q1: Are the superannuation lump sum benefits paid to you on compassionate grounds assessable income in the year you received them in accordance with Division 301 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: You are a member of a complying superannuation fund (the Fund). You suffered from a medical condition which was the cause of major ongoing health problems. You required surgery in order to treat the medical condition and alleviate your symptoms. However, this surgery was not readily available in Australia and you had to travel overseas for surgery and treatment. During the relevant income year, you lodged a request with the Department of Human Services for Early Release of Superannuation on Specified Compassionate Grounds to pay for expenses related to the overseas surgery and treatment. This request was granted and you received from the Fund two superannuation lump sums, each comprising of a taxable component - taxed element and tax free component. Tax was withheld by the Fund from both superannuation lump sums. Your condition is not terminal and you are currently employed. You are under 60 years of age.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 301. | Income Tax Assessment Act 1997 section 301-30. | Income Tax Assessment Act 1997 section 301-35 | Superannuation Industry (Supervision) Regulations 1994 regulation 6.01

Reasons for decision: Summary: The amount of the taxable component - taxed element of superannuation lump sums received from the Fund is your assessable income in the income year they are received. Therefore, these amounts should be included in your relevant income tax return. The amount of the tax free components of superannuation lumps is not your assessable income. Therefore, these amounts should not be included in your relevant income tax return. | Detailed Reasoning - Taxation on a superannuation benefit: The tax treatment of superannuation member benefits paid from complying plans is outlined in Division 301 of the ITAA 1997. In accordance with section 301-30 of the ITAA 1997, if you are under your preservation age when you receive a superannuation benefit, the tax free component of the benefit is not assessable income and is not exempt income. That is, it is tax free. The tax treatment of the taxable component of a superannuation member benefit depends on the age of the member when they receive the benefit, the elements that comprise the component (i.e. taxed or untaxed) and the form of the payment (i.e. lump sum or income stream). In your case, both superannuation lumps received from the Fund comprised, in part, of taxable component - taxed element ; and at the time you received these lump sums you were under your preservation age which, in accordance with regulation 6.01 of the Superannuation Industry (Supervision) Regulations 1994 , is 60 years. Therefore, the taxable component of the relevant superannuation lump sums is subject to taxation under section 301-35 of the ITAA 1997 which states: 301-35(1) If you are under your *preservation age when you receive a *superannuation lump sum, the *taxable component of the lump sum is assessable income. 301-35(2) You are entitled to a *tax offset to ensure that the rate of income tax on the *taxable component of the lump sum does not exceed 20%. | Detailed Reasoning - Discretion to vary the tax treatment of superannuation lump sums: The facts show that when the superannuation lump sum benefits were paid to you by the Fund, you were aged under, 60 years. Because you had not reached your preservation age at the time the benefit was received, the taxable component-taxed element is included in your assessable income in accordance with subsection 301-35(1) of the ITAA 1997. The wording in this section is quite specific and clearly states that taxpayers who are within a certain age range must include the amount of taxable component of the lump sum in their assessable income. As such, extraneous matters, such as the taxpayer's personal circumstances or the taxpayer's purpose for withdrawing the benefit, cannot be taken into account in determining the tax treatment. Furthermore, there is no discretion under Division 301 of the ITAA 1997 or elsewhere in the tax legislation that would allow the Commissioner to alter the rate of income tax prescribed by section 301-35 of the ITAA 1997. Therefore, the entire taxable component of the lump sums must be included in your assessable income for the relevant income year.