Private ruling: Superannuation lump sum benefit
Published: October 2014
Ruling period: Income year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Commissioner treat a lump sum superannuation benefit received by the taxpayer as a roll-over superannuation benefit as defined in section 306-10 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No

Relevant facts and circumstances: The taxpayer (the Taxpayer) is not 60 years but has reached their preservation age. The Taxpayer was a member of a superannuation fund (the Fund). During the 2013-14 income year, the trustee of the Fund paid a lump sum superannuation benefit directly to the Taxpayer's nominated bank account. Also during the 2013-14 income year, the trustee of the Fund rolled over an amount from the Fund to the Taxpayer's nominated roll-over fund as directed by the Taxpayer. A few days after the receipt of the lump sum benefit, the Taxpayer withdrew an amount from his personal bank account and paid the amount into another superannuation fund (the New Fund). The trustee of the New Fund confirmed the receipt of the amount and advised that the amount was applied as the Taxpayer's personal non-concessional contribution to the fund. You state that the reason the Taxpayer decided to withdraw the amount from the Fund as a lump sum rather than roll it over into the New Fund is because the Taxpayer was advised that doing so would ' benefit his family in the event of his death'.

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 Paragraph 306-10(b) | Income Tax Assessment Act 1997 Paragraph 306-10(c) | Income Tax Assessment Act 1997 Subparagraph 306-10(c)(i) | Income Tax Assessment Act 1997 Subparagraph 306-10(c)(ii) | Income Tax Assessment Act 1997 Subparagraph 306-10(c)(iiii) | Income Tax Assessment Act 1997 Paragraph 306-10(d) | Income Tax Assessment Act 1997 Subparagraph 306-10(d)(i) | Income Tax Assessment Act 1997 Subparagraph 306-10(d)(ii) | Income Tax Assessment Act 1997 Section 307-5 | Income Tax Assessment Act 1997 Subsection 307-5 | Income Tax Assessment Act 1997 Section 307-165 | Superannuation Industry (Supervision) Regulations 1994

Reasons for decision: Summary: The lump sum benefit paid by the Fund was not paid to a complying superannuation fund as required under section 306-10 of the ITAA 1997. Therefore, the Commissioner will not treat the lump sum superannuation benefit as a roll-over superannuation benefit. | Detailed Reasoning - Taxation of superannuation benefits: Division 301 of the 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 the member. 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. It is also relevant to consider whether the 'taxable component' of the superannuation benefit includes an 'element taxed in the fund' and/or an 'element untaxed in the fund'. 'Superannuation lump sum' is defined in section 307-65 of the ITAA 1997, which states: A superannuation lump sum is a *superannuation benefit that is not a *superannuation income stream benefit (see section 307-70). 'Superannuation benefit' is defined in section 307-5 of the ITAA 1997. Relevant to this case, it includes a payment to a person from a superannuation fund because the person is a fund member. In the present case, the superannuation lump sum amount is not a superannuation income stream benefit, and was a payment to the Taxpayer because the Taxpayer was a member of the Fund. Accordingly, section 301-10 of the ITAA 1997 provides that if a person is 60 years or older when the person receives a superannuation benefit, the benefit is not assessable income and is not exempt income. That is, all superannuation benefits are tax free. However, if a person is under 60 years but has reached their preservation age when they receive a superannuation lump sum, the taxable component of their benefit is assessable income and is taxed in accordance with section 301-20 of the ITAA 1997. 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 is born before 1 July 1960, preservation age is 55 years. As the Taxpayer was not 60 years but had reached their preservation age at the time they received the lump sum superannuation benefit, the benefit is assessable income of the Taxpayer and should be included in their assessable income for the 2013-14 income year. However, if the lump sum superannuation benefit is determined to be a 'roll-over superannuation benefit', section 306-5 of the ITAA 1997 provides that the roll-over superannuation benefit is not assessable income and is not exempt income. To determine if the lump sum superannuation benefit is a roll-over superannuation benefit, the benefit must meet all requirements under section 306-10 of the ITAA 1997, which states: 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. It is proposed to look at each of these requirements in turn. Benefit is a superannuation lump sum and a superannuation member benefit The lump sum benefit was a payment to the Taxpayer because the Taxpayer was a member of the Fund. Accordingly, this requirement is satisfied. Benefit is not a superannuation benefit of a kind specified in the regulations The lump sum superannuation benefit is not a superannuation benefit of the kind specified in the regulations. Accordingly, this requirement is satisfied. Benefit is paid from either a complying superannuation plan, an unclaimed money payment or arises from the commutation of a *superannuation annuity The lump sum superannuation benefit was paid by the trustee of the Fund, a complying superannuation fund. Accordingly, this requirement is satisfied. Benefit is paid to a complying superannuation plan or paid to an entity to purchase a superannuation annuity from the entity The lump sum superannuation benefit was paid directly to the Taxpayer's nominated bank account rather than to the New Fund. The Taxpayer's bank account is not a complying superannuation plan. As paragraph 306-10(d) of the ITAA 1997 requires the lump sum superannuation benefit to be paid to a complying superannuation plan, this requirement is not satisfied. Therefore, as the superannuation benefit paid by the Fund was not paid to a complying superannuation fund as required under section 306-10 of the ITAA 1997, the Commissioner will not treat the lump sum superannuation benefit as a roll-over superannuation benefit.