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When a superannuation provider releases an amount of money under section 292-415 of the Income Tax Assessment Act 1997 (ITAA 1997) is it required to reduce either the tax free component or the taxable component of a superannuation interest which is not providing a superannuation income stream?

No. At the time of releasing an amount of money under section 292-415 of the ITAA 1997 the superannuation provider is not required to reduce either the tax free component or the taxable component of a superannuation interest which is not providing a superannuation income stream.

The tax free component and the taxable component of a superannuation interest do not have to be calculated until the provider pays a superannuation benefit that requires the calculation of each of those components.

The trustee of a complying superannuation fund has received a release authority from a fund member to release money from the member's superannuation interest to pay an excess contributions tax assessment.

The trustee is not paying a superannuation income stream to the member in respect of that superannuation interest.

However, the member has advised the trustee they will be rolling over their entire superannuation interest to another superannuation fund immediately after the release of an amount equal to the excess contributions tax assessment.

Under subsection 292-405(1) of the ITAA 1997 the Commissioner must give a release authority to a person where the person is liable for excess non-concessional contributions tax in an excess contributions tax assessment. The release authority is to be given to the person as soon as practicable after the Commissioner makes the excess contributions tax assessment.

Where the superannuation provider makes a payment in respect of a release authority the payment is a superannuation benefit as described in section 307-5 of the ITAA 1997. Section 307-120 of the ITAA 1997 provides that a superannuation benefit includes a tax free component and/or a taxable component.

Unless specifically excluded, section 307-125 of the ITAA 1997 applies a proportioning rule to a superannuation benefit to ensure that the tax free and the taxable components of the superannuation benefit reflect the same proportions that these components make up of the total value of the superannuation interest from which the benefit is paid.

However, subsection 292-415(5) of the ITAA 1997 states that the proportioning rule in section 307-125 of the ITAA 1997 does not apply to a payment made under section 292-415 of the ITAA 1997. Therefore, the superannuation provider is not required to calculate either the tax free component or the taxable component of the superannuation benefit when they release an amount of money under section 292-415. Further, the superannuation provider does not reduce either the tax free component or the taxable component of the superannuation interest at that time.

However, the superannuation provider will be required to calculate the tax free component and the taxable component of the superannuation interest when they roll-over the superannuation interest to another complying superannuation fund. This is because the payment to the other superannuation fund is a superannuation benefit as described in section 307-5 of the ITAA 1997. Section 307-120 of the ITAA 1997 requires the superannuation benefit to include a tax free component and/or a taxable component. Further, the proportioning rule in section 307-125 of the ITAA 1997 will apply to the superannuation benefit.

According to section 307-210 of the ITAA 1997 the tax free component of a superannuation interest is the total of the contributions segment of the interest and the crystallised segment of the interest. Section 307-215 of the ITAA 1997 provides that the taxable component of a superannuation interest is the value of the interest less the tax free component of the interest.

As the amount of the contributions segment and the crystallised segment are unchanged by the release of an amount of money under section 292-415 of the ITAA 1997 the tax free component of the superannuation interest remains the same immediately after the payment in respect of the release authority. However, the taxable component of the superannuation interest has now reduced as the total superannuation interest has reduced.

Example:

The member has a superannuation interest of $600,000. The tax free component is $500,000. The member has excess non-concessional contributions of $100,000 and has received an excess contributions tax assessment for excess non-concessional contributions tax along with a release authority for $46,500. After the superannuation provider pays to the member an amount equal to the release authority the member's superannuation interest is $553,500.

When the superannuation provider subsequently rolls over the superannuation interest to another fund it must calculate the tax free component and taxable component of the superannuation benefit. The tax free component is $500,000 and the taxable component is the balance of the superannuation interest, that is, $53,500.

Note: The approach outlined in this ATO ID also applies for an amount paid by a superannuation provider under section 292-80C of the Income Tax (Transitional Provisions) Act 1997 after 30 June 2007 pursuant to a transitional release authority given to the provider under section 292-80B of that Act.

Date of Amendment Part Comment 8 May 2015 Reasons for Decision Updated. Keywords Spelling error corrected

Date of Amendment | Part | Comment

8 May 2015 | Reasons for Decision | Updated.

Keywords | Spelling error corrected