Superannuation retirement and employment termination: Undeducted Purchase Price, Deductible amount, Invalidity component

Can the post June 1994 invalidity component of a projected communtation payment be included as part of the Undeducted Purchase Price of the current superannuation pension?

No.

Taxpayer is in receipt of a disability pension.

The pension commenced before 1 July 1994.

The superannuation scheme tendered an offer to the taxpayer earlier this financial year.

The offer gave a choice of (a) continuing to receive the existing pension, commuting 50% - the balance taken as a pension, or (b) commuting 100%.

The projected commutation figures consist of a pre 1 July 1983 component, a post 30 June 1983 component and a post June 1994 invalidity component.

Subsection 27A(1) of the Income Tax Assessment Act 1936 (ITAA 1936) defines Undeducted Purchase Price in relation to an annuity or superannuation pension that commenced before 1 July 1994 as: 'if the first day of the period to which the first payment of the annuity or pension relates is before 1 July 1994, the sum of: so much of the 'purchase price' of the annuity or pension as was paid before 1 July 1983 and has not been, and will not be, an allowable deduction; and so much of the 'purchase price' of the annuity or pension as was paid on or after 1 July 1983 and has not been, and will not be, an allowable deduction, reduced by so much of the purchase price of the annuity or pension as is taken because of a rollover reduced by the post June 1983 taxed element, the post June 1983 untaxed element, the pre July 1983 component and the concessional component.'

Subsection 27A(1) of the ITAA 1936 also defines 'purchase price' as follows:

"purchase price" means (a) in relation to a superannuation pension - the sum of - (i) contributions made by any person to a superannuation fund to obtain superannuation benefits consisting only of the superannuation pension; and (ii) so much as the Commissioner considers reasonable of contributions made by any person to a superannuation fund to obtain superannuation benefits including the superannuation pension; and (b) in relation to an annuity - the sum of - (i) payments made solely to purchase the annuity; and (ii) so much as the Commissioner considers reasonable of payments made to purchase the annuity and to obtain other benefits.'

A post 1994 Invalidity component only exists as part of an Eligible Termination Payment (ETP). The pension was not purchased by rolling over an ETP.

Using the above definition, the undeducted purchase price would consist of any pre July 1983 excess contributions plus any post June 1983 undeducted contributions. Accordingly, a notional post June 1994 invalidity component would not be included as part of the undeducted purchase price.