Disability superannuation benefit: medical certificates

Can medical certificates supplied by a person in relation to a particular superannuation lump sum, satisfy the requirements of paragraph (b) of the definition of 'disability superannuation benefit' in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to later superannuation lump sums paid to the person by the same superannuation fund?

Yes. The medical certificates can satisfy the certification requirements in paragraph (b) of the disability superannuation benefit definition and can be used for a later lump sum that is paid to the member by the same superannuation fund.

In November 2007, a member of a complying superannuation fund is paid a superannuation benefit on the basis of having satisfied the permanent incapacity condition of release.

The member is less than preservation age throughout the financial year in which the benefit is paid.

Two medical practitioners have certified that the member is incapable of ever being gainfully employed in a capacity for which the member is reasonably qualified because of education, training or experience.

These certificates are presented to the fund before the trustee pays the benefit.

Three subsequent superannuation lump sums are paid in the same financial year, the last payment being made in April 2008.

Paragraph (b) of the definition of 'disability superannuation benefit' in subsection 995-1(1) of the ITAA 1997 requires that 2 legally qualified medical practitioners have certified that, because of the ill-health, it is unlikely that the person can ever be gainfully employed in a capacity for which he or she is reasonably qualified because of education, experience or training.

This medical certification requirement is very similar to the one that was contained in former section 27G of the Income Tax Assessment Act 1936 (ITAA 1936) which dealt with invalidity payments.

Invalidity payments can be seen as the precursor to disability superannuation benefits under the ITAA 1997. An amount could only qualify as an invalidity payment when paid to a person in consequence of the termination of his or her employment. Disability superannuation benefits can be received by someone who was self-employed.

Federal Commissioner of Taxation v. Pitcher [2005] FCA 1154; 2005 ATC 4813; (2005) 60 ATR 424 ( Pitcher's case ), a Federal Court decision which looked at former section 27G of the ITAA 1936 offers some guidance in relation to the medical certification requirement.

Ryan J, by way of obiter stated that the medical certificates must have issued when the payment fell to be characterised as an invalidity payment, that is, when the Commissioner assessed the payment to tax. He noted that they need not be obtained before the relevant payment.

He also noted that because the certificates need only be obtained before the Commissioner's assessment, the possibility can exist that the taxpayer has, at that time, by training or education undertaken after the former employment was terminated, qualified for employment in a capacity which was not available when the earlier termination occurred.

More than one implication can be drawn from the obiter of Ryan J. First, a particular certificate could relate to one or more payments made before the certificate issued. Secondly, as the certificate should be obtained before the Commissioner's assessment, it would usually be reasonable to rely on a certificate given in relation to one superannuation lump sum in determining whether a later superannuation lump sum paid by the same superannuation fund is a disability superannuation benefit.

In Pitcher's case , Ryan J stated it is the medical practitioners (not the Commissioner) who must be satisfied of the person's capacity to be employed in the future. But he cautioned that the Commissioner can determine, as a question of fact, whether a particular certificate properly satisfies the test of incapacity that is now restated in the definition of disability superannuation benefit.

Accordingly, it is the Commissioner's view that a medical certificate given in relation to a particular superannuation lump sum can, for the purposes of section 307-145 of the ITAA 1997, be used in relation to a later superannuation lump sum unless there is evidence to suggest to the trustee that the person's circumstances have changed in some relevant way.

In this particular instance, the nature of the disability, the short period of time over which the lump sums were paid (November 2007 for the first and April 2008 for the last) and the absence of any indication that the person has undergone any training or education are all relevant factors that suggest that the certificates for the first benefit payment can be reasonably applied to the subsequent payments.