Income tax: what is the method of calculating the capital value of a superannuation pension for reasonable benefit limit purposes under section 140ZO of the Income Tax Assessment Act 1936 (ITAA 1936) that is taken to have commenced when a superannuation pension is split pursuant to an agreement or court order on marriage breakdown?

Under Part VIIIB of the Family Law Act 1975 superannuation interests can be divided between parties on marriage breakdown.

This determination applies to the case where the superannuation interest to be divided takes the form of a superannuation pension ('the pension') that is not able to be commuted due to the governing rules of the superannuation fund or legislative restrictions. In such circumstances, the split is effected by dividing each pension payment between the member spouse and non-member spouse.

The splitting of the pension will result in two regular payments being made in respect of the same pension: one to the original recipient (member spouse) and one to the other party (non-member spouse).

When the first payment is made to the non-member spouse as a result of the splitting of a pension, a new pension is taken to have commenced to the non-member spouse.

Similarly, when a payment is made to the member spouse as a result of the splitting of a pension a new pension is taken to have commenced to the member spouse.

The capital value of the new pensions for the purposes of the reasonable benefit limits will be determined under section 140ZO of the ITAA 1936.

If the pension subject to the split is a lifetime pension then the capital value of the new pensions for both the member spouse and non-member spouse will be determined under subsection 140ZO(1). Attachment A shows how subsection 140ZO(1) applies to the new pensions.

If the pension subject to the split is not a lifetime pension then the capital value of the new pensions for both the member spouse and non-member spouse will be determined under subsection 140ZO(2). Under subsection 140ZO(2) the capital value of a pension that is not payable for life is the amount calculated in accordance with a method determined by the Commissioner in writing in relation to the pension.

Taxation Determination TD 2000/29 prescribes the method for determining the capital value of purchased pensions not payable for life. Where the pension subject to the split was valued under TD 2000/29 then the new pensions are also to be valued under TD 2000/29. Attachment B shows how TD 2000/29 applies to the new pensions.

Taxation Determination TD 2000/28 prescribes the method for determining the capital value of fixed term pensions other than purchased pensions. Where the pension subject to the split was valued under TD 2000/28 then the new pensions are also to be valued under TD 2000/28. Attachment C shows how TD 2000/28 applies to the new pensions.

We invite you to comment on this draft Taxation Determination. We are allowing 5 weeks for comments before we finalise the Determination. If you want your comments considered, please provide them to us within this period. Comments by Date: 17 January 2003 Contact Officer: Mladen Bajic E-mail address: Mladen.Bajic@ato.gov.au Telephone: (02) 9374 8096 Facsimile: (02) 9374 8200 Address: Mladen Bajic Superannuation TQS PO Box 277 WTC VIC 8005