ATO Interpretative Decision

ATO ID 2015/19

Superannuation

Issue

Can medical certificates supplied by an individual 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 individual by the same superannuation fund?

Decision

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

Facts

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.

Reasons for Decision

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 individual 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 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 an individual in consequence of the termination of his or her employment. Disability superannuation benefits can be received by someone who was self-employed.

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

Ryan J in Pitcher's case, 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 observed that because the certificates need only be obtained before the Commissioner's assessment to tax, 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.

Ryan J clarified that it is the medical practitioners and not the Commissioner who must be satisfied of the individual's capacity to be employed in the future. However, 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.

More than one implication can be drawn from the obiter of Ryan J in Pitcher's case. 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.

The Administrative Appeals Tribunal decision of Sills v. Federal Commissioner of Taxation [2010] AATA 843; 2010 ATC 10-164; (2010) 80 ATR 908 (Sills' case), which looked at former section 27G of the ITAA 1936 and section 82-150 of the ITAA 1997, also provides guidance as to the medical certification requirement.

Sills' case considered the obiter of Ryan J in Pitcher's case. The Tribunal reiterated that it is the medical practitioners who must be satisfied that, because of the ill-health of the individual, it is unlikely that the taxpayer can ever be gainfully employed in a capacity for which he or she is reasonably qualified because of education, experience or training; not the Commissioner or the Tribunal. The Tribunal reaffirmed the possibility that a taxpayer may, by subsequent training or education after the termination of the former employment, become qualified for employment in a capacity not available when the earlier termination occurred.

Moreover, the Tribunal held that the subsections in question did not impose additional requirements upon medical practitioners to set out the evidence upon which the medical certificates were based, provided the medical certificates properly answered the questions raised by the relevant legislation.

Accordingly, it is the Commissioner's view that medical certificates supplied 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 later superannuation lump sums provided the superannuation lump sums are paid over a short period of time (in this case November 2007 for the first and April 2008 for the last) and there is no evidence to suggest that the individual's circumstances have changed in some relevant way.

Year of income:  Year ended 30 June 2008

Legislative References:
Income Tax Assessment Act 1936
   section 27G

Case References:
Federal Commissioner of Taxation v. Pitcher
   [2005] FCA 1154
   (2005) 2005 ATC 4813
   (2005) 60 ATR 424

Keywords
Lump sum - superannuation benefits
Superannuation benefits
Tax free component of superannuation benefits
Disability superannuation benefit
Medical certificates

Siebel/TDMS Reference Number:  1-6T69XSJ; 1-JT71BGC

Business Line:  Superannuation

Date of publication:  3 July 2015
Date reviewed:  6 November 2019

ISSN: 1445-2782