Reasonable benefit limits: previous benefits

Is the superannuation pension paid to the recipient taken into account as a previous benefit when an eligible termination payment (ETP) is determined for reasonable benefit limits (RBL) purposes?

Yes, the superannuation pension is taken into account as a previous benefit.

Under the rules of the superannuation fund the recipient is entitled to both a pension and lump sum benefit.

The payer reports the two benefits to the Australian Taxation Office (ATO). The ETP is paid on a day later than the commencement day of the superannuation pension.

When a benefit is reported to the ATO, subsection 140R(1) of the Income Tax Assessment Act 1936 (ITAA 1936) requires the Commissioner to make a determination as to the extent to which a benefit is in excess of a person's RBL. A benefit is defined in section 140C of the ITAA 1936 to mean a superannuation pension, annuity or an ETP.

To determine whether a benefit is excessive, the RBL formula in subsection 140ZA(3) of the ITAA 1936 is used. This formula requires the 'sum of adjusted RBL amounts of previous benefit' to be added to the 'RBL amount of the current benefit' and then the result is measured against the applicable RBL.

A previous benefit is a benefit that was previously received by the recipient. A superannuation pension is taken to have been previously received if the pension's commencement day occurred before the day on which the current benefit was paid or commenced to be paid. The commencement day of a superannuation pension or annuity is defined in section 140C of the ITAA 1936. It is 'the first day of the period to which the first payment of the pension relates'.

As the commencement day of the superannuation pension occurred before the day the ETP is paid, the pension is a previous benefit. The adjusted RBL amount of this pension is therefore taken into account in determining whether the ETP is excess of the recipient's RBLs.