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Is a payment from a superannuation fund for permanent and partial disability an invalidity payment under section 27G of the Income Tax Assessment Act 1936 (ITAA 1936) and therefore exempt from tax?

No. The payment is not an invalidity payment under section 27G of the ITAA 1936.

The taxpayer retires from employment on medical grounds. The retirement happens after 1 July 1994 and before the taxpayer's 65th birthday. The taxpayer's superannuation fund makes a payment to the taxpayer as it considers the taxpayer, under the rules of the fund, to be 'permanently and partially disabled'.

Under section 27G of the ITAA 1936 a payment made after 1 July 1994 qualifies as an 'invalidity payment' providing two legally qualified medical practitioners certify that the disability is likely to result in the taxpayer being unable ever to be employed in a capacity for which the taxpayer is reasonably qualified because of education, training or experience (paragraph 27G(b)(i) of the ITAA 1936). The termination must also occur before the last retirement date in relation to the employment (usually the 65th birthday).

The two medical practitioners consulted by the fund state that the taxpayer can undertake alternative or light duties. Consequently, the tests in paragraph 27G(b)(i) of the ITAA 1936 have not been met as the taxpayer may be employed in a capacity reflective of the taxpayer's 'education, training or experience'.