Private ruling: Superannuation income stream - tax offset
Date of advice: 11 September 2015
Published: September 2015
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Has the tax offset under section 301-25 of the Income Tax Assessment Act 1997 been correctly applied in respect of the superannuation income steam benefit received by you in the 20WW-XX income year? | A1: Yes

Relevant facts and circumstances: You are a member of a superannuation scheme (the Scheme) and required to contribute to the Scheme. The Scheme is a defined benefit scheme in which you were required as an employee to contribute a specific amount. In the 200Y-ZZ income year you went through a family law dispute. The family law dispute resulted consent orders for a payment from the Scheme to your former spouse. Following the payment you continued to make contributions to the Scheme. In the 20AA-BB income year you accepted an offer of redundancy from your employer. A calculation was carried out by the Scheme to determine your entitlements in the Scheme. A PAYG payment summary - superannuation income stream for the year ended 30 June 2015 shows the taxable component - taxed element, tax free component and tax offset amounts you were entitled to. You are over your preservation age but less than 60 year of age.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 301-15 | Income Tax Assessment Act 1997 Section 301-25

Reasons for decision: Summary: In this case, the Scheme has carried out a calculation to determine your entitlements in the Scheme. The correct tax offset amount has been applied to your entitlements from the Scheme. Please note there is no discretion to increase the tax offset amount. | Detailed Reasoning - Superannuation benefit components: Superannuation benefits from a superannuation fund, regardless of whether they are paid as lump sum or an income stream, will generally comprise: • a tax free component ; and • a taxable component, which may include both or one of the following: • an element taxed in the fund; and/or • an element untaxed in the fund. | Detailed Reasoning - Tax free component: The tax free component of a benefit paid to a member of a superannuation fund who is over their preservation age but under age 60 is not assessable income and not exempt income under section 301-15 of the Income Tax Assessment Act 1997 (ITAA 1997). For a person born before 1 July 1960 their preservation age is age 55. In the 20WW-XX income year you were above your preservation age but under age 60. | Detailed Reasoning - Taxable component: The taxable component of a superannuation benefit is the amount remaining after reducing the benefit by the tax free component. The taxable component can consist of an 'element taxed' in the fund and/or an 'element untaxed' in the fund. The tax treatment of the taxable component depends on the age of the taxpayer, the elements that comprise the component and the form of the payment (i.e. whether paid as a lump sum or an income stream). For taxpayers over their preservation age and under 60 years of age who receive a superannuation income stream , the relevant provision is section 301-25 of the ITAA 1997 which states: (1) If you are under 60 years but have reached your preservation age when you receive a superannuation income stream benefit, the taxable component of the benefit is assessable income. (2) You are entitled to a tax offset equal to 15% of the taxable component of the benefit. Where a superannuation interest is split the tax-free and taxable components of the superannuation interest or superannuation payment must be calculated immediately before the interest split or payment, and divided between the split interests or payments in the same proportion. That means the superannuation benefit components would have to be calculated individually for each relevant person. In this case, the Scheme has carried out a calculation to determine your entitlements in the Scheme. Notwithstanding you had contributed to the Scheme since you became a member and continued to make contributions to the Scheme after the family law dispute, the taxable component of your superannuation income stream in the 20WW-XX income year, which comprises wholly of a tax element, has been calculated by the Scheme as $X. Accordingly, the tax offset amount you are entitled to is 15% of the taxed element of your taxable component. Further it should be noted that there is no discretion in the provisions to increase the tax offset amount.