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ATO Interpretative Decision

ATO ID 2008/137 (Withdrawn)

Income Tax
Separate Net Income: account-based pensions

Attention This ATO ID is withdrawn because it contains a view in respect of a provision of the Income Tax Assessment Act 1936 that does not apply after the 2013-2014 income year. Despite its withdrawal, this ATO ID continues to be a precedential ATO view in respect of decisions for income years up to, and including, the 2013-2014 income year.
Attention This document has changed over time. View its history.
FOI status: may be released
Status of this decision: Decision withdrawn 31 March 2017.

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Issue

Can the gross amount of an account-based pension received during an income year, be reduced by a proportionate amount of the personal superannuation contributions made during the accumulation phase of the pension, when calculating the adjusted taxable income for rebates of a dependant under section 159J of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

Yes. The gross amount of an account-based pension received during an income year, can be reduced by a proportionate amount of the personal superannuation contributions made during the accumulation phase of the pension, when calculating the adjusted taxable income for rebates of a dependant under section 159J of the ITAA 1936.

Facts

On 1 July 2008, the taxpayer's spouse commenced receiving payments from an account-based pension.

During the accumulation phase of the pension, the taxpayer's spouse made personal superannuation contributions of $100,000.

Reasons for Decision

For the 2013-14 income year and earlier income years, a resident taxpayer who contributes to the maintenance of a person who is a dependant may be entitled to a tax offset in accordance with Subdivision A of Division 17 of Part III of the ITAA 1936.

Subsection 159J(1) of the ITAA 1936 provides:

   [Maintenance of dependant] Where, during the year of income, a taxpayer contributes to the maintenance of a person (in this section referred to as a dependant ) specified in column 2 of the table set out in subsection (2) and that person is a resident, the taxpayer is entitled, in his or her assessment in respect of income of that year of income, to a rebate of tax ascertained in accordance with this section.

A spouse of a taxpayer is a person specified in column 2 of the table set out in subsection 159J(2) of the ITAA 1936.

Subsection 159J(4) of the ITAA 1936 provides:

   The amount of the rebate otherwise allowable under this section in respect of a dependant shall be reduced by $1 for every $4 by which the dependant's adjusted taxable income for rebates in the year of income exceeds $282.

'Adjusted taxable income for rebates' is defined in subsection 6(1) of the ITAA 1936 to mean adjusted taxable income (within the meaning of the A New Tax System (Family Assistance) Act 1999 , disregarding clauses 3 and 3A of Schedule 3 to that Act).

In Federal Commissioner of Taxation v. Knight 83 ATC 4096; (1983) 14 ATR 1, in the context of the former section 26AA of the ITAA 1936 (which concerned the assessability of annuities), Kelly J held that the pension arising from the contributing scheme in that case was within the ordinary meaning of the word 'annuity'. In deciding whether the annuity was purchased, Kelly J adopted the reasoning of Jacobs J.A. in Wayne v. Commissioner of Stamp Duties (1966) 85 WN (Pt 1) (NSW) 301 at 311-312, where it was said:

   ...where the scheme is a contributing scheme, even though the contributions are compulsory, I think that the interest created must be regarded as one which is purchased or provided by the employee.

On ordinary accounting principles, something which is purchased and which gives rise to an enduring benefit requires recognition as an asset. Therefore, at the end of the accumulation phase of a contributory pension, there would, under ordinary accounting principles, be an asset representing the sum total of the contributions made by the member during the accumulation phase.

As that asset proportionally dissipates on receipt by the member of payments from the contributory scheme, ordinary accounting principles would require an appropriate allocation of the purchase price as a direct charge against the income received.

The quantum of the direct charge will need to be determined on a case by case basis. This may be done on any reasonable basis in accordance with ordinary accounting principles.

Amendment History

Date of Amendment Part Comment
31 March 2017 Issue Remove superseded reference to separate net income
  Decision Remove superseded reference to separate net income
  Reasons for decision Included reference to applicable income years

Remove superseded reference to separate net income

Include reference to subsection 6(1) of the ITAA 1936

  Legislative references Remove reference to subsection 159J(6)

Include reference to subsection 6(1)

  Case references Remove reference to Federal Commissioner of Taxation v Harris
  Related public rulings Remove reference to Taxation Ruling IT 2391
  Keywords Remove superseded reference to separate net income of dependants

Include reference to adjusted taxable income for rebates

Date of decision: 15 July 2008

Year of income:Year ended 30 June 2009

Legislative references:
Income Tax Assessment Act 1936
   subsection 6(1)
   section 159J
   subsection 159J(1)
   subsection 159J(2)
   subsection 159J(4)
   section 26AA

Case references:
Federal Commissioner of Taxation v. Knight
   83 ATC 4096

Keywords
Adjusted taxable income for rebates
Dependant rebates
Rebates and offsets
Superannuation pensions

Siebel/TDMS reference number: 5931532; 1-B1G82WJ

Business line: Small Business/Individual Taxpayers

Date of publication: 10 October 2008
Date reviewed: 31 March 2017

ISSN: 1445-2782

ATO ID 2008/137 (Withdrawn) history   Top  
   Date   Version 
   15 July 2008   Original statement   
 You are here ®  31 March 2017   Withdrawn   


 


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