Revised Explanatory Memorandum
Circulated by the authority of the Treasurer, the Hon Wayne Swan MPChapter 7 Superannuation lump sum paid to a person with a terminal medical condition
Outline of chapter
14.1 Schedule 7 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) and the Income Tax (Transitional Provisions) Act 1997 so that a superannuation lump sum paid to a person who has a terminal medical condition is tax free.
Context of amendments
14.2 The taxation treatment of a superannuation lump sum payment differs depending on the age of the recipient and whether the payment is from a taxed or an untaxed source. For example, superannuation lump sums paid to members of taxed schemes below preservation age are taxed at a maximum rate of 21.5 per cent (inclusive of the Medicare levy). For members of untaxed schemes below preservation age, superannuation lump sums are taxed at a maximum rate of 31.5 per cent up to $1 million, and at the top marginal rate plus the Medicare levy for amounts above $1 million.
14.3 These amendments provide that a superannuation lump sum paid from either a taxed or an untaxed source to a person with a terminal medical condition is tax free.
Summary of new law
14.4 Section 303-10 is inserted into Division 303 of the ITAA 1997 with the effect that a superannuation lump sum paid to a person with a terminal medical condition is non-assessable and non-exempt income.
Comparison of key features of new law and current law
| New law | Current law |
| A superannuation lump sum paid to a member in respect of whom a terminal medical condition exists is non-assessable and non-exempt income. | The taxation treatment of a superannuation lump sum payment to a fund member differs depending on the age of the member and whether the payment is from a taxed or an untaxed source. |
Detailed explanation of new law
14.5 Division 303 of the ITAA 1997 deals with the taxation of superannuation benefits paid in special circumstances. Section 303-10 is inserted into Division 303 with the effect that a superannuation lump sum member benefit received by a person is not assessable income and is not exempt income if a 'terminal medical condition' exists in relation to the person at the time they receive the payment or within 90 days after they receive it. The circumstances in which a 'terminal medical condition' will be taken to exist in relation to a person will be prescribed in the Income Tax Assessment Regulations 1997 . [ Schedule 7, item 2, section 303-10 of the ITAA 1997, and item 3, definition of ' terminal medical condition' in subsection 995-1(1 ) of the ITAA 1997 ]
14.6 A consequential amendment is made to section 11-55 of the ITAA 1997 to include a reference to section 303-10 in the list of non-assessable non-exempt income provisions. [ Schedule 7, item 1, section 11-55 of the ITAA 1997 ]
Application and transitional provisions
14.7 The amendments made by this Schedule apply to payments made on or after 1 July 2007. As the amendments remove tax on the affected payments, the retrospective application of the changes will not disadvantage taxpayers. [ Schedule 7, item 5 ]
14.8 A transitional provision will apply for the 2007-08 financial year. Under this transitional provision the 90-day period from when a payment is received (referred to in section 303-10) can be extended to 30 June 2008 if this results in a longer period. [ Schedule 7, item 2, note to section 303-10 of the ITAA 1997, and item 4, section 303-10 of the Income Tax ( Transitional Provisions ) Act 1997 ]