Transformation of Pensions into Lump Sums

It is possible for a member receiving a pension to elect to have a payment from the super interest supporting the pension to be taxed as a superannuation lump sum rather than as a superannuation income stream payment.  This is provided by Taxation Regulation 995-1.03(b).

The final Ruling provides that a member can elect to have a payment taxed as a superannuation lump sum whether or not the payment arises from a partial commutation.  The only requirement is that the member must actually make the election at or before the time of payment.

In the Draft Ruling, the ATO took the view that if a member requested a partial commutation of the pension, the member had implicitly made a relevant election under Reg 995-1.03.

The ATO in the final Ruling has taken a harder line by requiring that the member must, at or before the time of payment, make the relevant election under Reg 995-1.03 and it will not be sufficient to simply request a partial commutation.  

The requirement to make an explicit election under Reg 995-1.03 will apply from 31 July 2013.  Where a member has made a partial commutation before 31 July 2013 and treated the resulting payment as a superannuation lump sum, the ATO will accept that characterisation of the payment.