Private ruling: Superannuation lump sum benefit
Date of advice: 18 July 2016
Published: August 2016
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the payment from the superannuation fund to the taxpayer be tax-free under section 303-10 of the Income Tax Assessment Act 1997 because a terminal medical condition exists in relation to the taxpayer? | A1: Yes

Relevant facts and circumstances: An individual (the Taxpayer) suffers from a terminal medical condition which could result in their passing within 24 months. The Taxpayer has provided a copy of a medical certificate from a specialist in a field related to the patient's condition, confirming that the Taxpayer is "suffering from an illness which in the normal course would result in death within a period of 24 months." The Taxpayer also provided a copy of a medical certificate from the Taxpayer's regular general practitioner, confirming that the Taxpayer is "suffering from an illness which in the normal course would result in death within a period of 12 months." The two medical certificates were provided to the Fund in relation to the payout of superannuation benefits and total and permanent disablement insurance. A superannuation lump sum payment was made to the Taxpayer. The tax free component comprised the entirety of the sum.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 303-10 | Income Tax Assessment Act 1997 Subsection 307-5(1) | Income Tax Assessment Act 1997 Section 307-65 | Income Tax Assessment Act 1997 Subsection 995-1(1) | Income Tax Assessment Regulations 1997 Regulation 303-10.01

Reasons for decision: Summary: The superannuation lump sum received by the Taxpayer from the Fund meets the requirements under section 303-10 of the Income Tax Assessment Act 1997 (ITAA 1997). Consequently, the superannuation lump sum is not assessable income and is not exempt income. The superannuation lump sum is tax-free. | Detailed Reasoning - Detailed reasoning: Section 303-10 of the ITAA 1997 sets out the tax treatment of a superannuation lump sum member benefit paid to a member with a terminal medical condition. Section 303-10 of the ITAA 1997 states: (1) This section applies to a *superannuation member benefit that: (a) is a *superannuation lump sum; and (b) is: (i) paid from a *complying superannuation plan; or (ii) a *superannuation guarantee payment, a *small superannuation account payment, an *unclaimed money payment, a *superannuation co-contribution benefit payment or a *superannuation annuity payment. (2) The lump sum is not assessable income and is not exempt income if a terminal medical condition exists in relation to you when you receive the lump sum or within 90 days after you receive it. In accordance with subsection 307-5(1) of the ITAA 1997, a superannuation member benefit is a payment to a person from a superannuation fund because the person is a fund member. A superannuation lump sum is defined in section 307-65 of the ITAA 1997 as a superannuation benefit that is not a superannuation income stream benefit. Subsection 995-1(1) of the ITAA 1997 defines ' terminal medical condition ' to have the meaning given by the regulations. In accordance with regulation 303-10.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997), a terminal medical condition exists in relation to a person at a particular time if: (a) two registered medical practitioners have certified, jointly or separately, that the person suffers from an illness, or has incurred an injury, that is likely to result in the death of the person within a period (the certification period ) that ends not more than 24 months after the date of the certification; (b) at least one of the registered medical practitioners is a specialist practising in an area related to the illness or injury suffered by the person; (c) for each of the certificates, the certification period has not ended. In this case, the Taxpayer received a lump sum benefit from a superannuation fund because they were a member of that fund. As such, the lump sum payment is a superannuation member benefit. The Fund is a complying superannuation fund and two registered medical practitioners (one of whom is a specialist practicing in the area related to the Taxpayer's illness) have certified that the Taxpayer suffers from an illness that is likely to result in the death of the Taxpayer within 24 months after the date of the certification. At the time of the payment, the certification period had not ended. Consequently, in accordance with section 303-10 of the ITAA 1997, the lump sum payment received by the Taxpayer from the Fund is not assessable income and is not exempt income. That is, it is tax-free. Please note that according to subsection 303-10(2) of the ITAA 1997, the terminal medical condition under regulation 303-10.01 of the ITAR 1997 only needs to exist 'when you receive the lump sum or within 90 days after you receive it' in order for the lump sum to be tax-free. In other words, whether the lump sum will be tax-free or not depends entirely on whether the certification requirements have been properly met during the timeframe. Other factors, such as the actual date of death, or if the illness actually results in death, are not relevant considerations for determining the tax treatment of the lump sum.