Issue
Is a benefit paid to a taxpayer by a superannuation fund 'excepted assessable income' for the purposes of Division 6AA of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
Yes. The benefit is 'excepted assessable income' for the purposes of Division 6AA of the ITAA 1936 as it is employment income pursuant to paragraph 102AE(2)(a) of the ITAA 1936.
Facts
The taxpayer receives a benefit from a superannuation fund.
The benefit is a series of payments made over a fixed term.
The benefit is an annuity at common law.
The taxpayer is under the age of 18 years.
The taxpayer is not an 'excepted person' as defined in subsection 102AC(2) of the ITAA 1936.
Reasons for Decision
Division 6AA of the ITAA 1936 ensures that special rates of tax and a lower tax free threshold apply in determining the basic income tax liability of a 'prescribed person', on their assessable income, unless the income is 'excepted assessable income'.
A 'prescribed person' is defined in subsection 102AC(1) of the ITAA 1936 to include any person, other than an 'excepted person' (as defined in subsection 102AC(2) of the ITAA 1936), under 18 years of age at the end of the income year.
As the taxpayer is less than 18 years of age and is not an 'excepted person' as defined in subsection 102AC(2) of the ITAA 1936, they are a 'prescribed person' for the purposes of Division 6AA of the ITAA 1936.
In addition to the exclusions for an 'excepted person', Division 6AA of the ITAA 1936 also includes provisions that exclude various types of income from being taxed at the special rates ('excepted assessable income').
Paragraph 102AE(2)(a) of the ITAA 1936 provides that an amount included in the assessable income of a minor is 'excepted assessable income' where the amount is 'employment income or business income'. Employment income is defined in section 102AF of the ITAA 1936 to include: (a) work and income support related withholding payments and benefits
Subsection 6(1) of the ITAA 1936 defines 'work and income support related withholding payments and benefits' to cover: a) payments from which an amount: (i) must be withheld under a provision of Subdivision 12-B (other than section 12-55), 12-C or 12-D in Schedule 1 to the Taxation Administration Act 1953 (even if the amount is not withheld).
Section 12-80 in subdivision 12-C in Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) provides, amongst other things, that: An entity must withhold an amount from a payment it makes to an individual if the payment is...an annuity within the meaning of the Superannuation Industry (Supervision) Act 1993 .
Section 10 of the Superannuation Industry (Supervision) Act 1993 (SISA 1993) defines 'annuity' to include a benefit provided by a life insurance company or a registered organisation, if the benefit is taken, under the regulations, to be an annuity for the purposes of this Act.
As this is an inclusive definition, an annuity at common law is also an annuity within the meaning of section 10 of the SISA 1993.
The taxpayer receives a benefit from a superannuation fund which is an annuity at common law. As such, the benefit is an annuity within the meaning of the SISA 1993, and consequently, for the purposes of section 12-80 of subdivision 12-C of Schedule 1 to the TAA 1953. This means that the benefit falls within the definition of 'work and income support withholding payments and benefits' in subsection 6(1) of the ITAA 1936 and within the scope of employment income as defined in section 102AF of the ITAA 1936.
Accordingly, the periodic payments made to the taxpayer are 'excepted assessable income' pursuant to paragraph 102AE(2)(a) of the ITAA 1936.
This ATO ID has been updated to reflect the relocation of the definition of 'work and income support related withholding payments and benefits' that applied from the 2006-07 income year. The definition was moved from section 221A of the ITAA 1936 to subsection 6(1) of the ITAA 1936.