Private ruling: Tax treatment of superannuation benefits
Date of advice: 1 December 2017
Published: April 2018
Ruling period: Income year ending 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: If the Commonwealth Superannuation Scheme (CSS) is able to determine the proportion of your superannuation income stream (the Pension) that is attributable to a previously taxed employer component, can you claim a rebate on the Pension that is attributable to the element taxed in the fund of the taxable component of the Pension? | A1: Yes, provided you also satisfy section 301-25 of the Income Tax Assessment Act 1997 .

Relevant facts and circumstances: You are a member of the CSS. You were also a member of two other superannuation funds (the Funds) During the 2011-12 income year, you transferred your benefits from the Funds into the CSS. The Funds are complying superannuation funds that are not constitutionally protected funds. Letters from the CSS: ● confirm the acceptance of the transfer amounts; and ● outline the employer portion of the transfer values. When a rollover amount is received in respect of a CSS member, a check is made to determine if there is any employer component included in the rollover. If this is the case, the member has the option of electing to have the rollover amount treated as a ‘transfer value’ or a ‘lump sum only’ accumulation. A ‘lump sum only’ accumulation remains in the CSS and the employer portion retains its taxed or untaxed status as it was at the time it was received. A ‘transfer value’ in the CSS provides a member with a credit of years of service for the employer portion of the rollover (less a notional 3% productivity amount which stays in the fund as a taxed preserved amount). The CSS states that the credit of service is paid as an untaxed Pension payment from an untaxed source. This results in a portion of the Pension attributable to the original taxed employer amount which was paid into the CSS being taxed as though it had never previously been subject to tax prior to being in the CSS. You receive a pension from the CSS, part of which is indexed, which you state is the only pension received by you. The CSS pension received by you is not a disability benefit nor is it a death benefit income stream. You are under 60 years but have not reached your preservation age.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 301-25 | Income Tax Assessment Act 1997 Section 301-40 | Income Tax Assessment Act 1997 Subsection 307-200(1) | Income Tax Assessment Act 1997 Subsection 307-200(3) | Income Tax Assessment Act 1997 Section 307-210 | Income Tax Assessment Act 1997 Section 307-215 | Income Tax Assessment Act 1997 Subsection 307-225(3) | Income Tax Assessment Act 1997 Subsection 307-295(2) | Income Tax Assessment Act 1997 Subsection 995-1(1) | Income Tax Assessment Regulations 1997 Regulation 307-200.03 | Income Tax Assessment Regulations 1997 Subregulation 307-200.03(2) | Superannuation Industry (Supervision) Act 1993 Subsection 10(1)

Reasons for decision: Summary: If the CSS is able to determine the proportion of the Pension that is attributable to a previously taxed employer component, the taxable component of the Pension will include a taxable component - element taxed in the fund. The taxable component - element taxed in the fund is included in your assessable income. As you have not reached your preservation age you are not entitled to a tax offset equal to 15% of the taxable component – element taxed in the fund. | Detailed Reasoning - Detailed Reasoning: Subsection 307-200(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the regulations may specify that a superannuation interest can be treated as two or more superannuation interests in certain circumstances. Subsection 307-200(3) of the ITAA 1997 provides that the regulations may also specify a way of treating a superannuation interest in relation to the element taxed in the fund and the element untaxed in the fund. Regulation 307-200.03 of the Income Tax Assessment Regulations 1997 (ITAR 1997) deals with the circumstances in which an interest in a public sector superannuation scheme is to be treated as two or more superannuation interests. Under subsection 995-1(1) of the ITAA 1997, a 'public sector superannuation scheme' has the same meaning as in the Superannuation Industry (Supervision) Act 1993 (SISA). Under subsection 10(1) of the SISA, a 'public sector superannuation scheme' includes a scheme for the payment of superannuation, retirement or death benefits established under the law of the Commonwealth. The CSS is established under the Superannuation Act 1976 , being a law of the Commonwealth. Sub-subregulation 307-200.03(2)(a) of the ITAR 1997 provides that if the superannuation benefit to be paid is sourced partly from contributions made into a public sector superannuation scheme or earnings on those contributions and partly from one or more other sources it is to be treated as two superannuation interests. The Commissioner considers that if the origin of part of an indexed pension, so far as the superannuation scheme is concerned, is contributions to the scheme from accruals in other taxed funds, then that part of the pension should be treated as sourced from those contributions. While the pension is paid from consolidated revenue, the Commissioner considers that the pension is sourced partly from contributions made into the scheme which was converted into a credit of additional contributory service. Under subregulation 307-200.03(3) of the ITAR 1997, your two interests are: ● a 'contributions' interest consisting of contributions made into the CSS that were converted to a credit of additional contributory service; and ● a 'remainder' interest consisting of the remainder of the amount sourced from the Commonwealth. Section 307-210 of the ITAA 1997 provides that the tax free component of a superannuation interest includes the contributions segment and the crystallised segment. Under section 307-215 of the ITAA 1997, the taxable component of a superannuation interest is the value of the interest less the tax free component of the interest. Subsection 307-295(2) of the ITAA 1997 provides that if a superannuation benefit is not sourced to any extent from contributions made into a superannuation fund or earnings on such contributions, the benefit will consist wholly of an element untaxed in the fund. The remainder interest does not have a crystallised segment in accordance with subsection 307-25(3) of the ITAA 1997. Therefore all benefits paid from the remainder interest will consist of an element untaxed in the fund in accordance with subsection 307 295(2) of the ITAA 1997. It will be necessary to determine the proportions of each Pension payment that is paid from the contributions interest and the remainder interest. In this case, you advise that the CSS is able to determine the proportion of your Pension that is attributable to a previously taxed employer component when the employer component of a transfer value originating in a taxed fund is paid. Therefore, the element taxed in the fund relating to the Pension’s taxable component represents assessable income (section 301-40 of the ITAA 1997). In relation to whether you are entitled to a tax offset on the taxable component – element taxed in the fund, and given the facts of your case, the relevant provision for consideration is section 301-25 of the ITAA 1997 which states: 301-25(1) If you are under 60 years of age but have reached your preservation age when you receive a superannuation income stream benefit… 301-25(2) You are entitled to a tax offset equal to 15% of the taxable component of the benefit. As you are less than 60 years of age and have not reached your preservation you are not entitled to a tax offset.