Issue
For reasonable benefit limits (RBL) purposes, does the minimum benefit that is paid by the superannuation fund qualify as a residual capital value (RCV)?
Decision
No, the minimum benefit that is paid by the fund does not qualify as an RCV.
Facts
Two superannuation funds were established by trust deed. They are regulated superannuation funds within the meaning of the Superannuation Industry (Supervision) Act 1993.
Amendments were made to the trust deeds of the two funds. These amendments provide that a minimum amount must be paid in respect of every member. This minimum amount is calculated using a formula.
When the total benefits that have been paid by way of pension (including pension payments to a spouse), are less than the minimum amount, the balance, 'the minimum benefit', is paid to the member's estate or to the member's spouse.
Reasons for Decision
The definition of the term 'residual capital value' in section 140C of the Income Tax Assessment Act 1936 (ITAA 1936) states that the term has the same meaning as in section 27A of the ITAA 1936. It is defined in subsection 27A(1) to mean the 'capital amount' payable on the termination of annuity or superannuation pension.
The RCV must be able to be ascertained so that the capital value of a superannuation pension can be determined for RBL purposes.
Similarly, the amount of the RCV is used in determining the deductible amount of an annuity or superannuation pension as per the formula in subsection 27H(2) of the ITAA 1936. In order that the deductible amount can be calculated the RCV must be a sum certain that is capable of being ascertained on the commencement of the pension or annuity.
On this basis the amount of any RCV must be known when the pension commences and furthermore it is implicitly recognised that the amount of the RCV cannot vary.
The amount of the minimum benefit that is payable in certain circumstances by either of the two funds is incapable of being ascertained when a pension commences. As a result any minimum benefit that is paid cannot be considered to be the RCV of a superannuation pension.