Private ruling: Pension transfer bonus
Date of advice: 20 February 2024
Published: 8 April 2024
Ruling period: A number of income years
Date scheme commenced: An income year

Ruling: Q1: Does the allocation of a Pension Transfer Bonus (PTB) by the taxpayer to a member's account constitute an assessable contribution such that it forms part of the assessable income of the taxpayer for the purposes of (a) section 295‐160 of the Income Tax Assessment Act 1997 (ITAA 1997), or (b) section 295‐190 of the ITAA 1997? | A1: (a) No (b) No

Relevant facts and circumstances: All legislative references are to the ITAA 1997 unless otherwise specified. Background 1. The taxpayer is a complying superannuation fund managed by a trustee company. 2. Unit prices for each investment option are calculated daily by the taxpayer and include a tax provision for current tax expense/benefit on realised capital gains/losses and deferred tax expense/benefit on unrealised capital gains/losses. 3. The tax provision is not allocated against a reserve account and there is no cash set aside by the taxpayer's custodian or the taxpayer for these tax amounts. 4. Further to the relevant income tax return lodgement, the taxpayer will make adjustments to these tax provisions to reflect the true tax position as part of the annual tax true-up process. 5. For financial reporting purposes, the deferred tax liability (DTL) or deferred tax asset (DTA) is recorded in the Statement of Financial Position pursuant to accounting standard AASB 112 Income Taxes. 6. The taxpayer's trust deed only provides for the establishment of reserve accounts and does not require any DTL/DTA provision to be allocated to and from a reserve account. Purpose of the Pension Transfer Bonus 7. The taxpayer proposes to implement a Pension Transfer Bonus (PTB) for eligible members moving from an accumulation or Transition to Retirement (Pension TTR) account to a Pension retirement account. 8. The purpose of the PTB is to compensate members who move from the accumulation or Pension TTR account to the Pension retirement account for their relevant proportion of the reduction in the taxpayer's DTLs due to this transition. 9. In the accumulation phase, deferred tax on unrealised capital gains (DTLs) is notionally applied to members' account balances through the unit pricing process to the extent that the members were exposed to those assets as part of their investment option choices. 10. When a member moves to the Pension retirement account, the DTL of the taxpayer is reduced and the exempt current pension income (ECPI) proportion of the taxpayer increases. 11. Accordingly, the PTB seeks to allocate this benefit to eligible individual members commencing a Pension retirement account. 12. The PTB is not a: • payment under section 65 of the Superannuation Guarantee (Administration) Act 1992 for the purposes of table item 3 of section 295-160 • payment under section 61 or 61A of the Small Superannuation Accounts Act 1995 for the purposes of table item 4 of section 295-160 • roll-over superannuation benefit that an individual is taken to receive under section 307-15 for the purposes of table items 2 and 2A of subsection 295-190(1) • taxable component of a directed termination payment (within the meaning of section 82-10F of the Income Tax (Transitional Provisions) Act 1997) for the purposes of table item 3 of subsection 295-190(1). 13. The inputs and method used to calculate the PTB amount are representative of a member's investment options during the accumulation phase, the value of balance transferred to the Pension retirement account, the duration of membership and the taxpayer's DTL position.

Relevant legislative provisions: Section 295-160 of the Income Tax Assessment Act 1997 | Section 295-190 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: All legislative references are to the ITAA 1997 unless otherwise specified. | Detailed Reasoning - (a) Section 295-160 contributions and payments: Section 295-160 provides that the assessable income of a complying superannuation fund (such as the taxpayer) in a year of income includes the following contributions or payments received by it in the income year: As the PTB is not a payment under section 65 of the Superannuation Guarantee (Administration) Act 1992 or a payment under section 61 or 61A of the Small Superannuation Accounts Act 1995 , it will not be included in the assessable income of the taxpayer for the purposes of table items 3 or 4 of section 295-160. In determining whether the PTB is assessable income of the taxpayer for the purposes of table item 1 of section 295-160, it is necessary to consider whether it is a contribution. The word 'contribution' is not defined in the ITAA 1997. The Commissioner's view of the ordinary meaning of contribution in the context of a superannuation fund in the ITAA 1997 is provided in Taxation Ruling TR 2010/1 Income tax: superannuation contributions . Paragraph 4 of TR 2010/1 states: In a superannuation context a contribution is anything of value that increases the capital of a superannuation fund provided by a person whose purpose is to benefit one or more particular members of the fund or all the members in general. Paragraph 10 of TR 2010/1 provides that: The capital of a superannuation fund may be increased directly by: • transferring funds to the superannuation provider • rolling over a superannuation benefit from another superannuation fund • transferring an existing asset to the superannuation provider (an in specie contribution) • creating rights in the superannuation provider (also an in specie contribution) or • increasing the value of an existing asset held by the superannuation provider. Further, paragraph 11 of TR 2010/1 provides that: The capital of a superannuation fund can also be increased indirectly by: • paying an amount to a third party for the benefit of the superannuation provider • forgiving a debt owed by the superannuation provider or • shifting value to an asset owned by the superannuation provider. The PTB is referrable to a member's past investment returns as it is a reversal of the earlier discounting of investment returns, that is, the provision of income tax liability in relation to unrealised capital gains that accrued to the taxpayer prior to the members commencing their pension (i.e., DTL). The PTB allows a portion of the value attributed to the reduction in the DTL to be allocated to the relevant member at the time of commencement of a superannuation income stream that is in the retirement phase. The taxpayer as a whole is in the same net asset position regardless of the PTB. The PTB merely acts to ensure a more fair and equitable allocation of tax between members. The PTB does not fall within any of the categories listed in paragraphs 10 and 11 of TR 2010/1 and as such, does not constitute a direct or indirect increase to the capital of the taxpayer. Therefore, the allocation of the reduction in DTL to members commencing a superannuation income stream that is in retirement phase will not result in a direct or indirect increase to the taxpayer's capital and thus does not satisfy the requirements in table item 1 of section 295-160. As the PTB does not fall within any of the items in the table in section 295-160, the allocation of the PTB by the taxpayer to a member's account does not constitute an assessable contribution and as such does not form part of the assessable income of the taxpayer for the purposes of section 295-160. | Detailed Reasoning - (b) Section 295-190 Personal contributions and roll-over amounts: Section 295-190 provides that the assessable income of a complying superannuation fund includes: Given that the PTB is not a roll-over superannuation benefit or a taxable component of a directed termination payment, it will not be included in the assessable income of the taxpayer for the purposes of table items 2, 2A or 3 of subsection 295-190(1). In determining whether the PTB constitutes assessable income of the taxpayer for the purposes of table item 1 of subsection 295-190(1), it is necessary to consider whether it is a contribution. On the basis that the PTB is not a contribution, as outlined above, it will not be an assessable contribution for the purposes of table item 1 of subsection 295-190(1). As none of the items in the table in section 295-190 are satisfied, the allocation of a PTB by the taxpayer to a member's account does not constitute an assessable contribution and as such does not form part of the assessable income of the taxpayer for the purposes of section 295-190.

contributions to provide superannuation benefits for someone else, except a contribution that is a roll-over superannuation benefit (table item 1 of section 295-160) | payments under section 65 of the Superannuation Guarantee (Administration) Act 1992 (table item 3 of section 295-160), and | payments under section 61 or 61A of the Small Superannuation Accounts Act 1995 (table item 4 of section 295-160). | personal contributions for which the contributor has given the fund a valid notice of intent to claim a deduction for the contributions (table item 1 of subsection 295-190(1)) | roll-over superannuation benefits that an individual is taken to receive under section 307-15 (table items 2 and 2A of subsection 295-190(1)), and | the taxable component of a directed termination payment (within the meaning of section 82-10F of the Income Tax (Transitional Provisions) Act 1997 ) (table item 3 of subsection 295-190(1)).