Superannuation, retirement & employment termination: Eligible termination payment (ETP) paid to a bank account under instructions from the taxpayer. Subsequent transfer not an ETP roll-over.

Is an eligible termination payment (ETP) from a superannuation fund that is paid into the taxpayer's bank account, and subsequently transferred to the taxpayer's personal superannuation fund, considered to be rolled-over for the purposes of section 27D of the Income Tax Assessment Act 1936 (ITAA 1936)?

No, the subsequent transfer of monies to the taxpayer's personal superannuation fund is not a roll-over of an eligible termination payment.

The taxpayer elects to receive a lump sum ETP from a superannuation fund and directs that it be paid into a personal bank account. At that time, the taxpayer indicates that the funds might later be transferred into the taxpayer's personal superannuation fund.

The payment, less tax instalment deductions, is accordingly deposited into the taxpayer's bank account. Soon after, the taxpayer transfers the money into a personal superannuation fund.

The taxpayer lodges an application to recover the tax instalments that were deducted pursuant to subsection 221H(5A) of the ITAA 1936.

An eligible termination payment (ETP) that is made during a year of income will be assessable to a taxpayer unless the payment is rolled-over.

To be regarded as rolled-over, an ETP must be a qualifying ETP as defined in subsection 27A(12) of the ITAA 1936. To fall within that definition, the ETP must be paid to the roll-over fund 'immediately' after the payment is made.

The Commissioner's views on whether an ETP is regarded as 'immediately' paid to a roll-over fund is contained in Taxation Determination TD 96/36. Broadly speaking, the requirement is satisfied where the paying fund makes the payment directly to the roll-over fund.

Taxation Determination TD 96/36 recognises exceptional circumstances in which the ATO will accept that payment has been made 'immediately', even though the taxpayer has initially taken the monies. In this regard, the determination states: '... circumstances sometimes arise where a payer fails to give the taxpayer an opportunity to elect a roll-over, or fails to effect a roll-over as instructed. In both these situations, the subsequent payment of the ETP to the roll-over fund will generally be regarded as having been immediately paid to the roll-over fund if the taxpayer deposits the ETP with a roll-over fund within seven days of the original ETP being paid, without having put the funds to any intervening purpose.'

In this case, the superannuation fund gave the taxpayer the opportunity to elect to have the ETP either rolled-over to a nominated roll-over fund, or to receive it as a lump sum payment. The taxpayer elected to have the lump sum payment deposited into a personal bank account. The superannuation fund made the payment in accordance with the taxpayer's instructions.

Despite the timely transfer to the personal superannuation fund, the taxpayer's ETP cannot be said to have been 'immediately' paid to the roll-over fund.