Private ruling: Superannuation income stream payment
Date of advice: 8 December 2015
Published: February 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Is your client able make an election pursuant to regulation 995-1.03 of the Income Tax Assessment Regulation 1997 (ITAR) and have their superannuation benefit taxed in accordance with section 301-20 of the Income Tax Assessment Act 1997 (ITAA 1997)? Advice/Answers Yes.

Relevant facts and circumstances: Your client is in receipt of an income stream from an account based pension within their self-managed superannuation fund. The income stream commenced after your client reached preservation age and is a transition to retirement income stream paid under item 110 of Schedule 1 of the Superannuation Industry (Supervision) Regulations 1994 (SISR). The pension comprises of a tax free proportion. The conditions under which the pension is subject allow for the variation of the amount of the client's benefit. The pension meets the general pension requirements of regulation 1.06 of SISR. The pension also meets the definition of a transition to retirement income stream in regulation 6.01(2) of SISR. Under those rules, your client cannot commute the pension to take cash, except under limited circumstances within the meaning of 'non commutable allocated pension' at regulation 6.01AB of SISR, which you state do not apply. Your client will elect that the trustee treat the pension payment as not being a superannuation income stream benefit. Your client will not be commuting any part of the pension and they are not requesting a lump sum payment from the trustee. You state that your client is simply electing that regulation 995-1.03 of the ITAR applies to the payment for income tax purposes. Your client has not taken any payments to which the low rate cap amount applies. The self-managed superannuation fund is claiming exempt current pension income under section 295-390 of the ITAA 1997 (unsegregated method).

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 295-390 | 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 Regulation 1997 Regulation 995-1.01 | Income Tax Assessment Regulation 1997 Regulation 995-1.03 | Superannuation Industry (Supervision) Regulations 1994 Item 110 of Schedule 1 Superannuation Industry (Supervision) Regulations 1994 Regulation 6.01AB

Reasons for decision: Summary: Your client is able make an election pursuant to regulation 995-1.03 of the ITAR prior to the benefit being paid. The superannuation benefit will be taxed in accordance with section 301-20 of the ITAA 1997. | Detailed Reasoning - Detailed Reasoning: 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 subsection 307-5(1) of the ITAA 1997. A superannuation benefit may be paid as an income stream or a lump sum. 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. Regulation 995-1.01 of the ITAR 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. In this case, the pension is a superannuation income stream as meets the requirements of regulation 1.06 of SISR. Taxation Ruling TR 2013/5 entitled ' Income tax: when a superannuation income stream commences and ceases ' states at paragraph 7: 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 Therefore, a member may elect under regulation 995-1.03 of the ITAR, before a particular payment from a superannuation interest supporting an income stream is made, to have the payment not treated as a superannuation income stream benefit for the purposes of the ITAA 1997. Regulation 995-1.03 of the ITAR 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. The conditions to which the superannuation income stream is subject allow for the variation of the amount of your client's benefit. You state that your client will not be commuting any part of the pension and they are not requesting a lump sum payment (as defined in SISA) from the trustee. Your client is making the election for taxation purposes. As all conditions under Regulation 995-1.03 of the ITAR have been satisfied, making the election will mean the pension payment is not a superannuation income stream benefit. Therefore, under the definition in section 307-65 of the ITAA 1997, the amount received will be a superannuation lump sum. 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. As your client is over their preservation age and under age 60 they will be entitled to a tax offset on any superannuation lump sum they receive. This ensures that the rate of tax is 0% on the amount that comes within the low rate cap and is limited to 15% plus Medicare levy on the amount above the low rate cap.