Private ruling: Non-commercial losses-income requirement
Published: March 2014
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Under subsection 35-10(2E) of the Income Tax Assessment Act 1997 (ITAA 1997) should a superannuation lump sum payment be included in the calculation of taxable income for the purposes of the income requirement? | A1: Yes.

Relevant facts and circumstances: You received a lump sum superannuation payment upon your retirement during the 2012-13 financial year which was shown as a taxed element under the taxable component on your payment summary. You are under 60 years and your preservation age is 55 years.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 35-10(2E) | Income Tax Assessment Act 1997 section 301-20

Reasons for decision: Summary: For the 2009-10 and later financial years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless: • you meet the income requirement and you pass one of the four tests • the exceptions apply • the Commissioner exercises his discretion. You satisfy the income requirement of subsection 35-10(2E) of the ITAA 1997 if the sum of the following is less than $250,000: • your taxable income for that year; • your reportable fringe benefits total for that year; • your reportable superannuation contributions for that year; • your total net investment losses for that year. The tax equation determines that taxable income is: • assessable income less deductions • assessable income consists of ordinary income plus statutory income • ordinary income includes all income received inside and outside Australia. Section 301-20 of the ITAA 1997 explains that a superannuation lump sum has a taxable component taxed at 0% up to low rate cap amount and 15% on the remainder. Subsection 301-20(1) of the ITAA 1997 states that if you are under 60 years but have reached your perseveration age when you receive a superannuation lump sum, the taxable component of the lump sum is assessable income. Therefore although the rate of income tax payable on the lump sum will not exceed 0% the amount is considered to be assessable income. In your circumstances you have received a taxed element lump sum payment in the 2012-13 financial year. At that time you were under 60 years and had reached your preservation age. In accordance with subsection 301-20(1) of the ITAA 1997 the lump sum you received is considered to be assessable income and is included for the purposes of the income requirement of subsection 35-10(2E) of the ITAA 1997.