Lump sum super payments to terminally ill members to be tax free

This previously announced measure has now been included in the new Government’s first legislative change to Superannuation.  Super lump sum payments to members who are terminally ill will be tax free.  This measure will apply to payments made on or after 1 July 2007 (the previous Government proposed that the exemption apply from 12 September 2007).

To qualify for tax free treatment the member receiving the super lump sum must have a terminal medical condition when the lump sum is received. 

Additionally, changes to the SIS Regulations made 15 February 2008 have introduced a new release condition  - “Terminal Medical Condition” – which means a member can access their entire super benefits tax free if they have a medical condition (whether due to illness or injury) that is likely to result in death within 12 months.  The member need not be permanently incapacitated or satisfied the retirement condition.

In order to satisfy the new release condition two medical certificates must be provided to the effect that the person suffers from an illness or has incurred an injury that is likely to result in the death of the member within 12 months of the date of the certificate.  One medical certificate must be provided by a specialist medical practitioner practising in the area related to the illness or injury suffered by the member.  The other certificate can be provided by a general practitioner.

The new release condition removes the possibility that a member may have a “terminal medical condition” yet not be “permanently incapacitated”.  Without the new release condition, a member in this situation would not have been able to access their super benefit.

Transitional Measures for 2007/08

The second point to remember is that because of special transitional measures applying to super lump sums received during the 2007/08 financial year, the “terminal medical condition” requirement can be satisfied by 30 June 2008 or 90 days after the lump sum is received, whichever is the later.