Private ruling: Assessability of pension and lump sum pension in arrears payment
Published: March 2014
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015
Date scheme commenced: 1 July 2013

Ruling: Q1: Is the pension payable from a superannuation fund to be included in your assessable income? | A1: Yes. | Q2: Is the lump sum pension in arrears payment from a superannuation fund to be included in your assessable income? | A2: Yes. | Q3: Will the Commissioner waive all tax on monies received from the superannuation fund? | A3: No.

Relevant facts and circumstances: You are over 60 years old. You are entitled to a pension and a lump sum pension in arrears payment from a superannuation fund. The superannuation fund advised that the lump sum pension in arrears payment consists entirely of a taxable component- element untaxed.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 6 | Income Tax Assessment Act 1997 Division 51 | Income Tax Assessment Act 1997 Section 301-100 | Income Tax Assessment Act 1936 Division 17 | Taxation Administration Act Part 5-5 | Taxation Administration Act Section 357-55

Reasons for decision: Summary: The pension is assessable income and is to be included in your income tax return in the year of receipt. As you are over 60 years old, you are entitled to a 10% tax offset in respect of any pension payments made after you are 60 years old. The lump sum pension in arrears payment is also assessable income and is to be included in your assessable income in the year of receipt. It is subject to tax at marginal rates. You may however, be entitled to a lump sum in arrears rebate in respect of the lump sum pension in arrears payment. The Commissioner of Taxation (the Commissioner) does not have the power to waive tax debts. A request for a waiver must be made with the Department of Finance and Deregulation (DoFD). | Detailed Reasoning - 1. Assessability of pension: Subsections 6-5(1) and 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provide that the assessable income of a taxpayer who is a resident of Australia for taxation purposes, includes income according to ordinary concepts (ordinary income), derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Pension or annuity income is assessable income under Division 6 of the ITAA 1997. Therefore, the proposed superannuation pension you are to receive from your superannuation fund, is not exempt from tax and is to be included as assessable income in the year of receipt. However, as you are over 60 years old, you are entitled to a 10% tax offset in respect of any pension payments made after you are 60 years old. | Detailed Reasoning - 2. Assessability of lump sum pension in arrears payment: As the pension you are entitled to, is assessable income, the lump sum pension in arrears payment, representing a back payment of pension payments that accrued in earlier income years, is therefore also assessable income. The lump sum pension in arrears payment is assessable at marginal tax rates. However, you may be entitled to a rebate of tax in respect of the lump sum pension in arrears payment. The rebate is designed to alleviate the problem of more tax being payable in the year in which the lump sum is received than would have been payable if the lump sum had been taxed in each of the years in which it accrued. Any rebate entitlement will be calculated by the Australian Taxation Office (ATO) when you lodge your income tax return for the year in which the lump sum pension in arrears payment is received. | Detailed Reasoning - 3. Waiver of tax debt: An accurate assessment of an individual's final tax liability, (if any), can only be made when the individual lodges their income tax return for the relevant income year. Only then will the ATO be able to determine an individual's taxable income and corresponding tax assessment. Where an individual is dissatisfied with a tax assessment, they can object to the assessment. The objection must be in writing, signed and dated and state fully and in detail the grounds for the objection. The Commissioner does not have the power to waive tax debts. Any person can request a waiver, either directly, or through a third party, by applying for a waiver with the DoFD. The taxpayer must lodge an application for waiver of debt in writing directly with the DoFD. It should be noted that there are three broad categories under which applications for waiver of taxation debts can be made. These categories are: _ applications based on the ATO's actions or omissions in administering the tax laws, where those actions or omissions have caused the taxpayer to incur unintended debts to the Commonwealth; _ applications based on the operation of the tax laws themselves, in that the relevant Act has caused the taxpayer to incur an unintended debt (the recovery of which would produce an anomalous or inequitable result); _ applications for waiver of Commonwealth debt on the ground that repaying the debt will cause genuine and significant hardship.