Private ruling: Superannuation income stream payment
Date of advice: 3 June 2016
Published: July 2016
Ruling period: Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2015

Ruling: Q1: 1. If, in each financial year in which the ruling applies, the taxpayer elects, before a particular superannuation income stream payment is made (the Benefit), that the Benefit is not to be treated as a superannuation income stream benefit, will regulation 995-1.03 of the Income Tax Assessment Regulations 1997 (ITAR 1997) be enlivened? 2. Assuming that the answer to Question 1 is 'yes', will the Benefit be treated as a superannuation lump sum in the taxpayer's hands such that, if the taxpayer is under 60 years but has reached their preservation age when they receive the benefit, they are entitled to a tax offset in respect of the benefit calculated under subsection 301-20(2) and 301-20(3) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: 1. Yes. 2. Yes.

Relevant facts and circumstances: A person (the Taxpayer) is, or will be shortly, receiving a benefit (the Benefit) from a superannuation interest that is supporting a superannuation income stream from a complying superannuation fund. The superannuation income stream from which the Benefit is, or will be, paid satisfies the definition of an 'account based pension' under subregulation 1.03(1) of the Superannuation Industry (Supervision) Regulations 1994 (SISR) and under all other relevant provisions of superannuation law. The superannuation income stream from which the Benefit is, or will be, paid also meets the definition of a 'transition to retirement income stream' (TRIS) in subregulation 6.01(2) of the SISR. The capital supporting the superannuation income stream from which the Benefit is, or will be, paid is comprised substantially or entirely of preserved benefits. The superannuation income stream from which the Benefit is, or will be, paid is comprised substantially or entirely of taxable component. The conditions to which the superannuation income stream is (or will shortly be) subject allow for the variation of the amount of the Taxpayer's benefit payments in a year in circumstances other than: • the indexation of the Benefit under the rules of the product; • the application of the family law splitting provisions; • the commutation of the Benefit (including commutation to pay a surcharge liability); or • the payment of an assessment of excess contributions tax. The superannuation income stream from which the Benefit is, or will be, paid at all relevant times allows the amount of the Benefit to be anywhere between at least 4% of the relevant account balance and no more than 10% of the relevant account balance. The Taxpayer will elect under regulation 995-1.03 of the ITAR 1997, before each Benefit is paid, that the Benefit is not to be treated as a superannuation income stream benefit. Assumption When you state, as a fact, that the superannuation income stream satisfies the definition of an 'account based pension' under subregulation 1.03(1) of the SISR and under all other relevant provisions of superannuation law and also meets the definition of a TRIS in subregulation 6.01(2) of SISR, you mean that will be the case at all times in the period covered by this ruling.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 301-20 | Income Tax Assessment Act 1997 Section 307-5 | Income Tax Assessment Act 1997 Section 307-65 | Income Tax Assessment Act 1997 Section 307-70 | Income Tax Assessment Act 1997 Section 307-345 | Income Tax Assessment Regulation 1997 Regulation 995-1.01 | Income Tax Assessment Regulation 1997 Regulation 995-1.03 | Superannuation Industry (Supervision) Regulations 1994 Regulation 1.03 | Superannuation Industry (Supervision) Regulations 1994 Regulation 1.06 | Superannuation Industry (Supervision) Regulations 1994 Regulation 6.01 | Superannuation Industry (Supervision) Regulations 1994 Regulation 6.01AB

Reasons for decision: Summary: Before the Benefit is paid, the Taxpayer can elect, pursuant to regulation 995-1.03 of the ITAR 1997, that the payment is not to be treated as a superannuation income stream benefit. Where the election has been made, the Benefit will be treated as a superannuation lump sum benefit and taxed in accordance with section 301-20 of the ITAA 1997. | Detailed Reasoning - Superannuation income stream benefits: Section 307-5 of the ITAA 1997 sets out amounts which are superannuation benefits. Generally, an amount which is paid to a person from a superannuation fund because they are a fund member is a superannuation benefit by virtue of item 1 in the table in subsection 307-5(1) of the ITAA 1997. A superannuation benefit may be paid, and is taxed, as either a superannuation income stream benefit or a superannuation lump sum benefit. A 'superannuation income stream benefit' is defined under section 307-70 of the ITAA 1997 as a superannuation benefit specified in the regulations that is paid from a superannuation income stream. A superannuation lump sum is defined under section 307-65 of the ITAA 1997 as a superannuation benefit that is not a superannuation income stream benefit. In accordance with subsection 307-70(2) of the ITAA 1997, a superannuation income stream has the meaning given by the regulations. Subregulation 995-1.01(1) of the ITAR 1997 states: superannuation income stream means: (a) an income stream that is taken to be: (i) an annuity for the purposes of the SIS Act in accordance with subregulation 1.05(1) of the SIS Regulations; or (ii) a pension for the purposes of the SIS Act in accordance with subregulation 1.06(1) of the SIS Regulations; or (iii) a pension for the purposes of the RSA Act in accordance with regulation 1.07 of the RSA Regulations; or (b) an income stream that: (i) is an annuity or pension within the meaning of the SIS Act; and (ii) commenced before 20 September 2007. You have advised that the superannuation income stream is an account based pension under subregulation 1.03(1) of the SISR and a TRIS as defined under subregulation 6.01(2) of the SISR. To satisfy both these definitions, the income stream must be a pension as defined in regulation 1.06 of the SISR and therefore, must satisfy the definition of superannuation income stream in subregulation 995-1.01(1) of the ITAR 1997. We have assumed that the superannuation income stream will satisfy the definition of account based pension and TRIS at all times throughout the period covered by this ruling. The meaning of 'superannuation income stream benefit' is provided in subregulations 995-1.01(2) to 995-1.01(5) of the ITAR 1997. Relevantly, subregulation 995-1.01(2) of the ITAR 1997 provides that a 'superannuation income stream benefit' means a payment from an interest that supports a superannuation income stream other than a payment to which regulation 995-1.03 of the ITAR 1997 applies. This view is stated in paragraph 7 of Taxation Ruling TR 2013/5 ' Income tax: when a superannuation income stream commences and ceases ': Each periodic payment, in a series of periodic payments, made from a superannuation interest that supports a superannuation income stream is a superannuation income stream benefit unless an election under regulation 995-1.03 of the ITAR 1997 has been made for that payment not to be treated as a superannuation income stream benefit Regulation 995-1.03 of the ITAR 1997 states: A payment from an interest that supports a superannuation income stream is not a superannuation income stream benefit if: (a) the conditions to which the superannuation income stream is subject allow for the variation of the amount of the payments of benefit in a year in circumstances other than: (i) the indexation of the benefit under the rules of the product; or (ii) the application of the family law splitting provisions; or (iii) the commutation of the benefit (including commutation to pay a surcharge liability); or (iv) the payment of an assessment of excess contributions tax; and (b) the person to whom the payment is made elects, before a particular payment is made, that that payment is not to be treated as a superannuation income stream benefit. Where the conditions in paragraph 995-1.03(a) of the ITAR 1997 are satisfied, a member may elect under regulation 995-1.03 of the ITAR 1997, before a particular payment from the relevant superannuation interest is made, that that payment is not to be treated as a superannuation income stream benefit for the purposes of the ITAA 1997. You have confirmed that the conditions under paragraph 995-1.03(a) of the ITAR 1997 have been, or will be, met. Therefore, provided that the superannuation fund is notified of the election before the Benefit is paid, the Taxpayer will be able to make the election that that payment is not to be treated as a superannuation income stream benefit. The effect of making the election under regulation 995-1.03 of the ITAR 1997 is that the Benefit is treated as a superannuation lump sum benefit as defined in section 307-65 of the ITAA 1997. | Detailed Reasoning - Taxation of superannuation lump sums: Section 301-20 of the ITAA 1997 which sets out the tax treatment of a superannuation lump sum states: (1) If you are under 60 years but have reached your *preservation age when you receive a *superannuation lump sum, the *taxable component of the lump sum is assessable income. (2) You are entitled to a *tax offset that ensures that the rate of income tax on the amount mentioned in subsection (3) does not exceed 0%. (3) The amount is so much of the total of the *taxable components included in your assessable income for the income year under subsection (1) as does not exceed your *low rate cap amount (see section 307-345) for the income year. (4) You are entitled to a *tax offset that ensures that the rate of income tax on the amount mentioned in subsection (5) does not exceed 15%. (5) The amount is so much of the total of the *taxable components included in your assessable income for an income year under subsection (1) as exceeds your *low rate cap amount for the income year. *To find definition of asterisked terms, see the Dictionary, starting at section 995-1 As the Taxpayer is over their preservation age and under age 60, they will be entitled to a tax offset under either, or both, subsection 301-20(2) or (4) of the ITAA 1997 on any superannuation lump sum they receive. Subsection 301-20(2) ensures that the rate of tax is 0% on the taxable component of the superannuation lump sum that does not exceed the Taxpayer's 'low rate cap amount' (as defined in section 307-345 of the ITAA 1997) and subsection 301-20(4) limits the rate of income tax to 15% on the amount that exceeds the Taxpayer's low rate cap amount.

The advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict ATO policy or decisions.