Private ruling: Assessable income - derivation
Published: April 2013
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: In the circumstances described, will the superannuation benefit be derived for income tax purposes in the relevant year? | A1: Yes

Relevant facts and circumstances: You propose to close your self-managed superannuation fund account on day, date 20XX. On this date the interest and final balance will be calculated and the bank will write a cheque to you for the balance of the closed account. You propose that the cheque be held in the bank's vault over the weekend. On day, date you propose to deposit the cheque into your account.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources in or out of Australia during the income year. Subsection 6-5(4) of the ITAA 1997 provides that in working out whether a taxpayer has derived an amount of ordinary income and when it is derived, a taxpayer is taken to have received the amount when it is applied or dealt with in any way on their behalf or as directed by them. Taxation Ruling TR 98/1 provides that under the receipts method, income is derived when it is received either actually or constructively under subsection 6-5(4) of the ITAA 1997. The Explanatory Memorandum to the Income Tax Assessment Bill 1996 confirms that an amount is treated as having been received under subsection 6-5(4) of the ITAA 1997 as soon as the taxpayer gets a benefit from it. A taxpayer may be paid an amount of income by cheque, or into a taxpayer's bank account. These are treated as methods of payment that are recognised as forms of actual payment. By accepting a cheque which is regarded as payment of the benefit, you are at liberty to bank it or apply it as you wish. The benefit arises at the time when the cheque is handed to you. Derivation cannot be deferred by, for example, not banking a pay cheque (see Tilley v The Official Receiver (1960) 103 CLR 529). A cheque represents a written instrument that embodies a right to be paid and is generally regarded as payment of cash unless and until it has been presented and refused. Therefore, holding a cheque in a bank's vault over the weekend at your direction will not defer derivation. Therefore, you will be taken to have derived the superannuation payment amount for the purposes of section 6-5 of the ITAA 1997 on the date the cheque is drawn and handed to you as you will have received a benefit from the payment being applied or dealt with on your behalf.