Edited version of your written advice

Authorisation Number: 1012935462989

Date of advice: 12 January 2016

Ruling

Subject: Superannuation income streams

Questions

1. Do the Relevant Pensions satisfy the definition of 'superannuation income stream' for the purposes of section 307-70 of the Income Tax Assessment Act 1997 (ITAA 1997)?

2. Will the proposed acquisition of annuities by the trustee of the Fund during the relevant income year for the funding of pensions cause a cessation of superannuation income streams and a commencement of new superannuation income streams for tax purposes?

Advice/Answers

1. Yes.

2. No

This ruling applies for the following period

Year ending 30 June 20XX

The scheme commenced on

1 July 20XX

Relevant facts and circumstances

The Fund is a complying superannuation fund.

The Fund is paying a number of pensions.

The trustee of the Fund, has been continually exercising a discretion pursuant to a clause of the Participation Schedule for a sub-plan of the Fund (the Subplan), since the relevant income year. The clause states that:

• Subject to the relevant law a member's benefit shall be invested in such manner as the Trustee may determine from time to time and any investment returns (whether positive or negative) shall be applied to the Member's final plan benefit.

• The Member's final plan benefit may be paid or applied in the sole discretion of the Trustee in any of the following ways:

• where a member is a member of any other superannuation arrangement, by transfer of the member's final plan benefit to the trustee or trustees;

• by applying the member's final plan benefit to the member to provide benefits in respect of the member which in the opinion of the Trustee are of a similar type to those which might reasonably have been expected by the member had the principal employer continued to make contributions;

• by paying the member's final plan benefit to the member on ceasing to be an employee or to the dependants of that member on the member's death or to the legal personal representatives should there be no dependants.

The effect of the exercise of the discretion is to ensure that defined benefit pensioners of the Subplan continue to receive benefits from the Fund that they ordinarily would have received had the relevant employer continued to make contributions to the Fund for these pensioners. The relevant employer ceased making contributions to the Fund in respect of those pensioners during the relevant income year.

There are a number of defined benefit pensions being paid under the Subplan.

The trustee of the Fund is currently proposing to acquire annuities from a life assurance company to support continued payment of benefits to defined benefit pensioners of the Sunplan.

The terms that currently apply and have applied to these pensioners of the Subplan are the same as those that applied pursuant to the Participation Schedule prior the relevant income year.

Pensions paid by the Subplan include child pensions and total and permanent disablement pensions (the Relevant Pensions). The Relevant Pensions commenced to be paid prior to the 2007-08, income year. The Relevant Pensions at all times have been paid by the Subplan periodically, and have not been paid as a series of lump sum payments.

The terms that will apply to the Relevant Pensions following the proposed acquisition of the annuities from the life assurance company are the same as those terms that have applied pursuant to the Participation Schedule prior to the acquisition of the annuities.

In the view of the trustee of the Fund, there is sufficient capital at this time to continue payments of benefits. The trustee of the Fund does not anticipate an exhaustion of capital to pay benefits.

You state there is no commutation of the income stream and there has only been a change in the underlying investments.

The Relevant Pensions at all times were paid periodically, were of an amount ascertainable, a sum certain, and not paid as a series of lump sum payments.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 307-5

Income Tax Assessment Act 1997 Section 307-70

Income Tax Assessment Act 1997 Subsection 995-1(1)

Income Tax Assessment Regulations 1997 Regulation 995-1.01

Retirement Savings Accounts Regulations 1997 Regulation 1.07

Superannuation Industry (Supervision) Regulations 1994 Subregulation 1.05(1)

Superannuation Industry (Supervision) Regulations 1994 Subregulation 1.06(1)

Reasons for decision

Summary

The Relevant Pensions satisfy the definition of 'superannuation income stream' for the purposes of section 307-70 of the ITAA 1997. The proposed acquisition of annuities by the trustee of the Fund during the relevant income year for the funding of pensions does not cause a cessation of the superannuation income streams.

Detailed Reasoning

Superannuation income stream

Section 307-70 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the meaning of superannuation income stream and superannuation income stream benefit. Section 307-70 of the ITAA 1997 states:

(1) A superannuation income stream benefit is a *superannuation benefit specified in the regulations that is paid from a *superannuation income stream.

(2) A superannuation income stream has the meaning given by the regulations.

A 'superannuation benefit' is defined in subsection 995-1(1) of the ITAA 1997 as having the meaning given by section 307-5 of the ITAA 1997. Subsection 307-5(1) of the ITAA 1997 states that a 'superannuation benefit' is a payment described in the table which includes under item 1, 'a payment to you from a superannuation fund because you are a fund member'.

Under subsection 307-70(2) of the ITAA 1997 a 'superannuation income stream' has the meaning given by the ITAR 1997.

A superannuation income stream is defined in regulation 995-1.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997) as:

(a) an income stream that is taken to be:

(i) an annuity for the purposes of the SIS Act in accordance with subregulation 1.05(1) of the SIS Regulations; or

(ii) a pension for the purposes of the SIS Act in accordance with subregulation 1.06(1) of the SIS Regulations; or

(iii) a pension for the purposes of the RSA Act in accordance with regulation 1.07 of the RSA Regulations; or

(b) an income stream that:

(i) is an annuity or pension within the meaning of the SIS Act; and

(ii) commenced before 20 September 2007.

Subregulation 1.05(1) of the Superannuation Industry (Supervision) Regulations 1994 (SISR) applies to benefits purchased by way of a rollover and regulation 1.07 of the Retirement Savings Accounts Regulations 1997 (RSA Regulations) applies to retirement savings accounts. Relevant to this case is subregulation 1.06(1) of the SIS Regulations which states:

A benefit is taken to be a pension for the purposes of the Act if:

(a) it is provided under rules of a superannuation fund that:

(i) meet the standards of subregulation (9A); and

(ii) do not permit the capital supporting the pension to be added to by way of contribution or rollover after the pension has commenced; and

(b) in the case of rules to which paragraph (9A)(a) applies - the rules also meet the standards of regulation 1.07D; and

(c) in the case of rules to which paragraph (9A)(b) applies - the rules also meet the standards of regulation 1.07B.

In this case, the Relevant Pensions provided under the rules of the Fund, were at all times were paid periodically, were of an amount ascertainable, a sum certain, and not paid as a series of lump sum payments. Therefore, the Relevant Pensions satisfy the definition of 'superannuation income stream' for the purposes of section 307-70 of the ITAA 1997.

When a superannuation income stream ceases

Taxation ruling TR 13/5 entitled 'Income tax: when a superannuation income stream commences and ceases' (TR 2013/5) explains when a superannuation income stream commences and when it ceases.

Whilst TR 2013/5 applies to pensions that satisfy subregulation 1.06(1) and paragraph 1.06(9A)(a) of the SISR 1994 (referred to as 'account based pensions' in the ruling) and account based pensions that are transition to retirement income streams, the principles will generally apply to other pension types.

Neither the ITAA 1997 nor the ITAR 1997 sets out when a superannuation income stream ceases for income tax purposes. Whether a superannuation income stream has ceased must be determined by reference to the superannuation fund's governing rules, the relevant requirements of the SISR 1994 and the particular facts and circumstances of the payment of the member's, or dependant beneficiary's, benefits.

TR 2013/5 provides circumstances superannuation income stream ceases. A superannuation income stream ceases:

• where there is no longer a member who is entitled, or a dependant beneficiary of a member who is automatically entitled, to be paid a superannuation income stream benefit from a superannuation interest that supports a superannuation income stream.

• where any of the requirements of the SIS Regulations relating to the payment of the superannuation income stream are not met in a financial year.

• due to specific requirements in the payment standards in the SIS Regulations.

• when the capital supporting the superannuation income stream has been reduced to nil, and the member's right to have any other amounts applied (other than by way of contribution or roll over) to their superannuation interest has been exhausted.

• when a request from a member or a dependant beneficiary to fully commute their entitlements to future superannuation income stream benefits for an entitlement to a lump sum takes effect.

• as soon as a member in receipt of the superannuation income stream dies, unless a dependant beneficiary of the deceased member is automatically entitled, under the governing rules of the superannuation fund or the rules of the superannuation income stream, to receive an income stream on the death of the member.

In this case, the proposed acquisition of annuities by the Fund during the relevant income year for the funding of pensions does not cause a cessation of the superannuation income streams.

The proposed acquisition of annuities will be purchased and used to fund the existing pensions and not to substitute them.

The proposed acquisition relates to the funding of the Relevant Pensions only and a change in the asset base supporting the payment of those superannuation income streams.

Consequently there is no commencement of new superannuation income streams for tax purposes.

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