Private ruling: Transfer balance cap and availability of a structured settlement debit
Date of advice: 21 August 2017
Published: December 2017

Ruling: Q1: Does a debit arise in a person’s (the Taxpayer) transfer balance account under item 2 of the table in section 294-80(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice. During a person’s (the Taxpayer) period of service they suffered a severe injury which left them disabled. The Taxpayer subsequently initiated proceedings seeking damages for personal injury from the taxpayer’s employer. The Taxpayer subsequently entered into a Settlement Agreement to receive a lump sum payment inclusive of costs. After the payment of legal costs, the Taxpayer received a final amount before DDMMYY. The Taxpayer contributed the final amount into two superannuation funds. As the Taxpayer was under 55 years of age at the time of the contribution, the Fund received evidence that the Taxpayer was unlikely to be able to be gainfully employed in any capacity that they are reasonably qualified for because of education, experience or training due to their personal injury. The Taxpayer is currently in receipt of three allocated pensions and two superannuation pensions.

Relevant legislative provisions: Section 292-95 of the Income Tax Assessment Act 1997 | Section 294-15 of the Income Tax Assessment Act 1997 | Section 294-20 of the Income Tax Assessment Act 1997 | Section 294-30 of the Income Tax Assessment Act 1997 | Section 294-80 of the Income Tax Assessment Act 1997 | Section 307-70 of the Income Tax Assessment Act 1997 | Section 307-80 of the Income Tax Assessment Act 1997 | Section 307-230 of the Income Tax Assessment Act 1997 | Regulation 1.03C of the Superannuation Industry (Supervision) Regulations 1994

Reasons for decision: Summary: The Taxpayer is entitled to have transfer balance debits posted to their transfer balance account equal to the amount of their structured settlement contribution, being the total amount of their structured settlement contributions. The debits (there will be two due to contributions to two funds) will arise at the date that the Taxpayer first starts to have a transfer balance account pursuant to section 294-80 of the ITAA 1997. As an existing recipient of a retirement phase superannuation income stream at 1 July 2017 the debit will arise at that date. | Detailed Reasoning - Transfer balance account: Pursuant to section 294-15 of the ITAA 1997, a person commences to have a transfer balance account if they have, at any time, been the recipient of a superannuation income stream. The transfer balance account commences on the later of 1 July 2017 or the day that a person first starts to be a retirement phase recipient of a superannuation income stream. | Detailed Reasoning - Recipient of a superannuation income stream: Subsection 294-20(1) of the ITAA 1997 state that a person is a retirement phase recipient of a superannuation income stream at a time if they have a superannuation income stream in the retirement phase at that time and a superannuation income stream benefit is payable at that time. Subsection 294-20(2) of the ITAA 1997 states that a person is also the retirement phase recipient of a superannuation income stream at a time if: (a) The superannuation income stream is in retirement phase at that time; and (b) The superannuation income stream is a deferred superannuation income stream; and (c) A superannuation income stream benefit from the superannuation stream will be payable to you after that time. | Detailed Reasoning - Superannuation income stream benefit: Subsection 307-80(1) states that a superannuation income stream is in the retirement phase if a superannuation income stream benefit is payable from it at that time. In this case, the Taxpayer has previously met a condition of release (by virtue of permanent incapacity) and is currently receiving pension benefits from three income streams from their superannuation funds. Consequently the superannuation income streams are in the retirement phase and the Taxpayer’s transfer balance account will commence on 1 July 2017. | Detailed Reasoning - Transfer balance: Section 294-30 of the ITAA 1997 states that a person’s transfer balance in their transfer balance account at a time equals the sum of the transfer balance credits less the sum of the transfer balance debits. The transfer balance can be a negative amount where the debits exceed the credits posted to the account. This is likely to be the case here as the debits arising from the structured settlement contribution will total more than the credits arising from the value of the income stream in place at 1 July 2017. | Detailed Reasoning - Transfer balance credit: Section 294-25 of the ITAA 1997 sets out when a transfer balance credit arises and the amount of the credit. Item 1 of the table specifies that where an individual is the recipient of a retirement phase income stream just before 1 July 2017 a credit of the value of the superannuation interest that supports the income stream just before 1 July 2017 arises in the transfer balance account on 1 July 2017. In this case the value of the credits (for the income stream) will be dependent on the value reported by the superannuation providers as the values just prior to 1 July 2017. Based on the information provided the credits posted to the taxpayer’s transfer balance account will total approximately the balance of his superannuation funds in retirement phase at 30 June 2017. | Detailed Reasoning - Transfer balance debit: The table in section 294-80 sets out when a debit arises in a person’s transfer balance account. Item 2 of the table in section 294-80 of the ITAA 1997 states that a debit will arise in a person’s transfer balance account from structured settlement contributions. The debit is the amount of the contribution and arises at the later of the time the contribution is made or the start of the day that a person first starts to have a transfer balance account. | Detailed Reasoning - Structured settlements: Pursuant to item 2 in section 294-80 of the ITAA 1997, the contributions made by the Taxpayer to their respective superannuation funds meets the conditions of a structured settlement in section 292-95, as the Taxpayer was awarded damages in respect of personal injury by a relevant court. Subsection 294-80(2) of the ITAA 1997 allows for the conditions in paragraphs 292-(1)(b) and (c), regarding timing and notification of the contribution, to be disregarded as the structured settlement was received before DDMMYY. The Orders were made by consent of both parties. The Taxpayer contributed the majority of the monies into the Fund. | Detailed Reasoning - Structured settlement debits: The Explanatory Memorandum for Treasury Laws Amendment (Fair and Sustainable Superannuation Bill) 2016 (Explanatory Memorandum) states at paragraph 3.116: The debit arises as the time the individual contributes the structured settlement amount or the time the individual first has a transfer balance account. The debit that arises is the value of the contribution. It is not necessary to link the contribution to any particular amount of capital in the retirement phase. Consequently, as debits are available to the total value of the structured settlement contributions, the Taxpayer will have transfer balance account debits equal to the amount of their structured settlement contribution, effective on 1 July 2017 when they first commence to have a transfer balance account.

This advice applies for the following period: Income year ending 30 June 2018