Superannuation, retirement & employment termination: Eligible termination payment. Compensation to the taxpayer for fraudulent use of their superannuation benefit. Payment not from a superannuation fund.

Is the lump sum amount paid to the taxpayer by the trustee of a superannuation fund, as compensation for a financial adviser fraudulently obtaining the taxpayer's superannuation benefit, an eligible termination payment (ETP) under paragraph 27A(1)(b) of the Income Tax Assessment Act 1936 (ITAA 1936)?

No. The lump sum is not an ETP under paragraph 27A(1)(b) of the ITAA 1936.

The taxpayer's financial adviser commits a fraud by withdrawing the taxpayer's benefits from a superannuation fund. The withdrawal occurs without the taxpayer's knowledge or authority and is carried out by a forging of the taxpayer's signature.

The corporate trustee of the fund accepts the responsibility for releasing the unauthorised superannuation benefits to the financial adviser. The trustee agrees to compensate the taxpayer through a one-off lump sum payment. This payment is made directly to the taxpayer by cheque. The payment is made from the funds of the corporate trustee and not from the superannuation fund itself. No statement of termination payment form is given to the taxpayer.

The term 'eligible termination payment' (ETP) is exhaustively defined in subsection 27A(1) of the ITAA 1936 and encapsulates a number of different payments. Of relevance, paragraph 27A(1)(b) provides that 'any payment made from a superannuation fund...' is an ETP.

In this case, the compensation payment is paid directly to the taxpayer by the corporate trustee in its own right. The payment is not paid out of, or from, the fund itself. As a result, the compensation payment received by the taxpayer is not an eligible termination payment under paragraph 27A(1)(b) of the ITAA 1936.