ATO ID 2010/76: Superannuation benefits: deduction for insurance - increase in the untaxed element
Date of decision: 19 March 2010
Year of income: Year ended 30 June 2009
Business line: Superannuation

Issue
Does section 307-290 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to a lump sum superannuation death benefit in relation to which a deduction under sections 295-465 or 295-470 of the ITAA 1997 has not been, and will not be, claimed in the income year in which the benefit is paid but was claimed in an earlier income year?

Decision
Yes. Section 307-290 of the ITAA 1997 applies to a lump sum superannuation death benefit where a deduction under sections 295-465 or 295-470 of the ITAA 1997 has been, or is to be, claimed in any income year.

Facts
An individual commenced working in 1995 and became a member of a superannuation fund at the same time. The member had a single accumulation interest in the superannuation fund. At the time of joining the fund the member authorised the trustee to obtain life insurance for the member. A portion of the trustee's premium was charged to the member's interest for each financial year from 1995 to 2009. The superannuation fund claimed a deduction for insurance premiums in relation to the member under section 279 of the Income Tax Assessment Act 1936 (ITAA 1936) for the 1995-96 to 2006-07 income years. The superannuation fund claimed a deduction under section 295-465 of the ITAA 1997, for insurance premiums in relation to the member for the 2007-08 income year. The member died in January 2009. On 30 June 2009 the superannuation fund paid out a superannuation death benefit lump sum. The lump sum superannuation death benefit included the proceeds of a claim payable under the life insurance policy. No deduction has been, or is to be, claimed for the 2008-09 income year under section 295-465 or 295-470 of the ITAA 1997.

Reasons for decision
Summary: Section 307-290 of the ITAA 1997 applies to include an element untaxed in the fund of the taxable component of a lump sum superannuation death benefit, when a superannuation fund has claimed, or intends to claim, a deduction under section 295-465 or 295-470 of the ITAA 1997. As Note 2 to subsection 307-290(1) of the ITAA 1997 states, section 307-290 of the Income Tax (Transitional Provisions) Act 1997 (ITTPA 1997) provides that, for the purposes of section 307-290 of the ITAA 1997, a deduction made under former section 279 or 279B of the ITAA 1936 is to be treated as having been made under section 295-465 or 295-470 of the ITAA 1997 instead. The ordinary meaning of the words 'a deduction has been, or is to be, claimed' in subsection 307-290(1) of the ITAA 1997, is not that a deduction must have been made in every income year for life insurance linked to the member's superannuation interest. Nor is it necessary for a deduction to be, or have been, claimed in relation to the particular year in which the superannuation lump sum death benefit is payable. Rather, the ordinary meaning of the words will be satisfied if a deduction has been, or is to be claimed, in relation to the benefit in any year of income. This view is consistent with the operation of subsection 27AB(3) of the ITAA 1936 on which section 307-290 of the ITAA 1997 is based. The Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 does not indicate any intention to alter the operation of the law from subsection 27AB(3) of the ITAA 1936. An untaxed element was calculated under subsection 27AB(3) of the ITAA 1936 if the relevant deduction had been claimed 'in any year'. Therefore, it does not matter that the fund did not claim a deduction under section 295-465 of the ITAA 1997 in the 2008-09 income year. The fund did claim a deduction under section 279 of the ITAA 1936 and section 295-465 of the ITAA 1997 in relation to the member in prior years. So section 307-290 of the ITAA 1997 applies to include an element untaxed in the fund in the taxable component of the lump sum superannuation death benefit.

Legislative references: Income Tax Assessment Act 1997 section 295-465 section 295-470 section 307-290
Other references: Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006
Subject references: Death benefits - superannuation benefits Insurance Superannuation Superannuation benefits Superannuation fund expenses Superannuation funds - death or disability premiums