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Wednesday, 13 June 1984
Page: 2890

Senator WALSH (Minister for Resources and Energy)(10.27) —Yes, it is correct. Where a pension payable to a surviving spouse or other dependant is commuted, the commuted sum would be taxed in accordance with the general provisions of the legislation. Senator Harradine mentioned a widow-and I believe it would also apply to a widower-who received advice to commute a pension into a lump sum, and put forward the proposition, apparently, that that commuted sum should be tax exempt. The widows or widowers might receive advice for a number of reasons, one of which could be that they had substantial income of their own and that the additional pension would be substantially taken in income tax. Therefore they might receive advice, well based from the selfish point of view of the individual, to commute it to a lump sum in tax free form. It is precisely that sort of commutation which, among other things, this Bill is aimed at terminating.

If Senator Harradine is implying what he seems to have been implying, he has missed the entire intention of the Government; that these arrangements are to provide for incomes rather than for lump sums. It is the intention of the Government and it is the whole thrust of the policy to shift benefits in that direction. There is one point, however, that should be noted: If a pension entitlement by way of an annuity which has already been purchased is commuted in the way suggested by Senator Harradine, that portion of the lump sum capitalised from an annuity entitlement, which is a notional return of capital used for the purchase of the annuity as distinct from income earned by the payment made to purchase the annuity, will be exempt from taxation. That is a consistent application of the rules which are applied for more general annuities and tax treatment of annuity payments.