Private ruling: Commutation of pension
Date of advice: 8 July 2015
Published: July 2015
Ruling period: Income year ended 30 June 2015.
Date scheme commenced: 1 July 20XX.

Ruling: Q1: Did your client's superannuation death benefit income stream cease when they rolled over their superannuation benefit from Fund A to Fund B? | A1: Yes.

Relevant facts and circumstances: The Deceased passed away on a certain date in the 20XX income year. Your client (the Taxpayer), was the spouse of the Deceased and a death benefits dependant. The Taxpayer commenced a death benefit income stream from Fund A on a certain date in the 20XX income year. On a date in the relevant income year, the Taxpayer rolled over their superannuation benefit from Fund A to Fund B.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 306-10 | Income Tax Assessment Act 1997 paragraph 306-10(a) | Income Tax Assessment Act 1997 subsection 307-5(1) | Income Tax Assessment Act 1997 subsection 307-5(3) | Income Tax Assessment Act 1997 paragraph 307-5(3)(c) | Income Tax Assessment Act 1997 subsection 307-5(3A) | Income Tax Assessment Act 1997 section 307-15 | Income Tax Assessment Act 1997 section 307-65.

Reasons for decision: Summary: The Taxpayer's death benefit income stream ceased at the time of the commutation of their superannuation income stream entitlements into an entitlement to a lump sum prior to the roll-over. This is because it is not possible to roll-over superannuation income stream benefits directly. The superannuation benefit that arose from the commutation of the Taxpayer's superannuation death benefit income stream is a superannuation member benefit due to the operation of subsection 307-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997). | Detailed Reasoning - Roll-over superannuation benefit: The definition of a roll-over superannuation benefit is outlined in section 306-10 of the ITAA 1997. According to the legislation: A superannuation benefit is a roll-over superannuation benefit if: (a) the benefit is a superannuation lump sum and a superannuation member benefit; and (b) the benefit is not a superannuation benefit of a kind specified in the regulations; and (c) the benefit satisfies any of the following conditions: (i) it is paid from a complying superannuation plan; (ii) it is an unclaimed money payment; (iii) it arises from the commutation of a superannuation annuity; and (d) the benefit satisfies any of the following conditions: (i) it is paid to a complying superannuation plan; (ii) it is paid to an entity to purchase a superannuation annuity from the entity. (emphasis added) This means that unless a superannuation benefit is a superannuation lump sum, it cannot be a roll-over superannuation benefit and so cannot be rolled over from one fund to another. The definition of a superannuation lump sum is provided in section 307-65 of the ITAA 1997, which states that: A superannuation lump sum is a superannuation benefit that is not a superannuation income stream benefit (see section 307-70) This therefore means that the benefits from a superannuation income stream cannot be rolled over from one fund to another without first commuting the entitlement to future benefits into an entitlement to a lump sum. The Commissioner's views on when a superannuation income stream has ceased is discussed in Taxation Ruling TR 2013/5 (TR 2013/5) entitled ' Income Tax: when a superannuation income stream commences and ceases.' Relevantly, paragraphs 23 and 24 state that: 23. A superannuation income stream ceases when a request from a member or a dependant beneficiary to fully commute their entitlements to future superannuation income stream benefits for an entitlement to a lump sum takes effect. 24. A request to fully commute a superannuation income stream takes effect as soon as the trustee's liability to pay periodic superannuation income stream benefits to the member or a dependant beneficiary is substituted with a liability to pay that member or dependant beneficiary a superannuation lump sum. In the Taxpayer's case, a roll-over from Fund A to Fund B occurred on a date in the subsequent income year. The very fact that a roll-over has occurred means that the Taxpayer commuted their future income stream entitlements into an entitlement to a lump sum prior to the roll-over. In turn, the fact that the commutation has occurred means that the Taxpayer's death benefit income stream has ceased. Note that this is the case even if the Taxpayer is currently receiving superannuation income stream benefits from Fund B. Any income stream benefits that the Taxpayer currently receives from Fund B are benefits from an entirely new income stream. They are not benefits from the original death benefit income stream.