Private ruling: Tax treatment of super lump sum withdrawal
Date of advice: 24 April 2017
Published: September 2017
Ruling period: Income year ending 30 June 20ZZ
Date scheme commenced: 1 July 20YY

Ruling: Q1: Is any part of the superannuation lump sum you plan to withdraw from your superannuation fund assessable to you in the 20XX-YY income year under subsection 301-20(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: 1. The taxpayer reached their preservation age in the 20YY-ZZ income year but is under the age of 60 years. 2. The taxpayer is a citizen of the Country A. 3. For a period of 5 years between the 20AA-BB and 20CC-DD income years the taxpayer resided in Australia as a temporary resident on a 410 Retirement Visa 4. The 410 Retirement Visa is a temporary visa designed for retirees and grants the visa holder to work, study and travel to, enter and remain in Australia. A holder of the 410 Retirement Visa is not eligible for Medicare entitlements and is exempt from paying the Medicare levy and surcharge. 5. Prior to leaving Australia, the taxpayer became a complying Australian superannuation fund. 6. Your benefit account balance in the complying Australian fund was an amount as of mid-20CC. The account balance comprised of a tax-free component and taxed component.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 301 | Income Tax Assessment Act 1997 Section 301-15 | Income Tax Assessment Act 1997 Section 301-20 | Income Tax Assessment Act 1997 Subsection 301-20(1) | Income Tax Assessment Act 1997 Subsection 301-20(2) | Income Tax Assessment Act 1997 Section 307-120 | Income Tax Assessment Act 1997 Subsection 307-275(1) | Income Tax Assessment Act 1997 Subsection 307-275(2) | Income Tax Assessment Act 1997 Section 307-345 | Income Tax Assessment Act 1997 Subsection 307-345(2) | Income Tax Assessment Act 1997 Section 960-285 | Income Tax Assessment Act 1997 Subsection 995-1(1) | Superannuation Industry (Supervision) Regulations 1994 Regulation 6.01

Reasons for decision: Summary: 1. The tax free component of the superannuation lump sum benefit the taxpayer planned to withdraw from the Australian superannuation fund before they reach the age of 60 years will be tax free and should not be included in your assessable income for the relevant income year. 2. The taxable component of the superannuation lump sum should be included in the taxpayer's assessable income for the relevant year. The amount that is within the low rate cap amount will be taxed at 0%; the amount which exceeds the low rate cap amount (if any) will be taxed at 15%. 3. If the total amount of the taxable components of superannuation lump sums included in their assessable income for the relevant income year is less than the low rate cap amount for the year, the taxpayer will not be taxed on any part of the superannuation lump sum received from the Australian superannuation fund. | Detailed Reasoning - Detailed reasoning: 1. Division 301 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the taxation treatment that applies to superannuation 'member benefits' paid from complying superannuation funds. Member benefits are broadly all superannuation benefits other than benefits paid after the death of a member. 2. The tax arrangements differ in accordance with the age of the person that receives the superannuation benefit and whether the superannuation benefit is a superannuation lump sum or a superannuation income stream. 4. In accordance with section 307-120 of the ITAA 1997, a superannuation lump sum benefit will generally comprise of : ● a tax free component; and ● a taxable component which may include: ● an element taxed in the fund; and/ or ● an element untaxed in the fund. | Detailed Reasoning - Tax free component: 5. The tax free component of a superannuation lump sum benefit, paid to a member of a superannuation fund who has reached their preservation age but is under 60 years when they receive the lump sum, is not assessable income and is not exempt income under section 301-15 of the TAA 1997. 6. By virtue of subsection 995-1(1) of the ITAA 1997, 'preservation age' is defined in regulation 6.01 of the Superannuation Industry (Supervision) Regulations 1994 . For a person who, as you, was born in the 1961-62 income year, the preservation age is 57 years. 7. Therefore, as you have reached your preservation age and intend to withdraw your superannuation benefits in the form of a lump sum before you reach 60 years, the tax free component of their benefit will be non-assessable, non-exempt income. That is, it will be tax free. | Detailed Reasoning - Taxable component: 8. In accordance with subsection 307-275(1) of the ITAA 1997, the taxable component of a superannuation benefit consists of an element taxed in the fund and/or an element untaxed in the fund . 9. Subsection 307-275(2) of the ITAA 1997 provides that the taxable component of a complying superannuation fund (other than a constitutionally protected fund) consists wholly of an element taxed in the fund. 10. The tax treatment of a taxable component which consists of an element taxed in the fund is set out in section 301-20 of the ITAA 1997. If the taxpayer was under 60 years but have reached their preservation age when they receive a superannuation lump sum, the taxable component of the lump sum is assessable income and is taxed as follows: ● the amount up to the low rate cap amount - 0%; and ● The amount that exceeds the low rate cap amount - 15% 11. The low rate cap amount is the amount calculated under section 307-345 of the ITAA 1997 and is a lifetime limit. The low rate cap for the 2011-12 income year is $165,000. In accordance with section 960-285 of the ITAA 1997, the low rate cap amount is indexed in line with average weekly ordinary time earnings for each income year. 12. Please note that, if a taxpayer has used all or part of their low rate cap amount in an earlier year, the low rate cap for the 2011-12 income year will be the difference between $165,000 and the used up balance for the previous year.