Private ruling: Exempt current pension income
Date of advice: 20 June 2016
Published: August 2016
Ruling period: Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2015

Ruling: Q1: Will a self-managed superannuation fund (the Fund) remain entitled to exempt current pension income (ECPI) during the year (assuming all other requirements are met) under section 295-390 of the Income Tax Assessment Act 1997 (ITAA 1997) where the Fund holds a mixture of pension and non-pension liabilities at some point during the year and these are not always supported by separately identified assets? | A1: Yes.

Relevant facts and circumstances: The Fund is a complying superannuation fund. The Fund currently holds a mixture of pension and non-pension liabilities (which are not supported by separately identified assets). The members of the Fund are in receipt of income streams (the Pensions) from the Fund. The Pensions satisfy the definition of 'account based pension' under the Superannuation Industry (Supervision) Regulations 1994 (SISR) and under all other relevant provisions of superannuation law. The Pensions also meet the definition of a transition to retirement income stream in regulation 6.01(2) of SISR. The conditions under which the members' pensions are subject, allow for variation of the amount of the member's benefit payments. Each member will make an election under regulation 995-1.03 of the Income Tax Assessment Regulations 1997 (ITAR). Each member will elect under regulation 995-1.03 of the ITAR, before a particular payment is made, that the payment is not to be treated as a superannuation income stream.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 295F | Income Tax Assessment Act 1997 Section 295-385 | Income Tax Assessment Act 1997 Section 295-390 | Income Tax Assessment Regulations 1997 R egulation 995-1.03 | Superannuation Industry (Supervision) Regulations 1994

Reasons for decision: Summary: Subdivision 295F of the ITAA 1997 operates to exempt from tax the income of a superannuation fund earned from assets that are used to finance current pensions. There are different methods which a trustee of a fund may use to determine the amount of income that is exempt from income tax, depending on the circumstances of the particular case. If you make or have made an election under regulation 995-1.03 of the ITAR to have a payment from an account based pension not be treated as a superannuation income stream benefit, the Fund cannot claim ECPI in respect of the pension under section 295-385 of the ITAA 1997. If you make or have made an election under regulation 995-1.03 of the ITAR to have a payment from an account based pension not be treated as a superannuation income stream benefit, the Fund can claim ECPI in respect of the pension under section 295-390 of the ITAA 1997. However, the average value of the Fund's current pension liabilities in respect of the pension for the purposes of applying the formula in subsection 295-390(3) will be reduced reflecting the value of the superannuation lump sum that results from you making the election.