Private ruling: Superannuation income stream benefits
Date of advice: 5 September 2017
Published: December 2017
Ruling period: Income year ended 30 June 2016 | Income year ending 30 June 2017
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the payments made by the Trustee for the Fund following the death of the sole member satisfy the requirements of subregulation 995-1.01(3) of the Income Tax Assessment Regulations 1997 (ITAR 1997)? | A1: Yes.

Relevant facts and circumstances: The Fund is a single member self-managed superannuation fund. The Fund’s sole member (the Deceased Member), was being paid a superannuation income stream from the Fund prior to their death. The Deceased Member died in the 2015-16 income year. The trustee for the Fund is the child of the Deceased Member (the Trustee). The income stream did not automatically revert to another person upon the death of the Deceased Member. No amounts other than investment earnings have been added to the Fund on or after the date of the Deceased Member’s death. The Trustee paid several superannuation death benefits to the Deceased Member’s estate from late 2015 to June 2017. You requested the Commissioner to consider whether the superannuation death benefits were paid as soon as was ‘practicable’. You advised that, to your knowledge, probate of the Deceased Member’s estate had not been granted. Information provided in relation to your request provides a multiplicity of factors that resulted in the delay in making the payments from the Fund, including: ● The Trustee genuinely believed the lawyers for the estate of the Deceased Member would be handling the payment of the superannuation death benefits. ● The Trustee’s ability to handle stress and issues related to the estate of the Deceased Member was greatly diminished for the following reasons: ● prior to the Deceased Member passing, the Trustee nursed their sibling for a period before they passed away; ● concurrently, the Deceased Member was diagnosed with a debilitating disease, and the Trustee later helped care for them; ● the Trustee consequently suffered much stress and anxiety and was diagnosed with an illness in late 2015-16; ● the Trustee also suffered emotionally in dealing with their spouses diagnosed illness in 2016; ● a number of complications in dealing with the Deceased Member’s estate.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 295-F | Income Tax Assessment Regulations 1997 Regulation 995-1.01 | Income Tax Assessment Regulations 1997 Subregulation 995-1.01(3 ) | Explanatory Statement to the Income Tax Assessment Amendment (Superannuation Measures No. 1) Regulation 2013

Reasons for decision: Summary: The payments will be regarded as having been made ‘as soon as it was practicable’ following the Deceased Member's death. As subregulation 995-1.01(3) of the ITAR 1997 has been satisfied, the payments made by the Fund will be taken to be payments of superannuation income stream benefits. | Detailed Reasoning - Detailed reasoning: Income that a complying superannuation fund derives from assets set aside or used to pay superannuation income stream benefits to members, which would otherwise be assessable income, is deemed to be exempt income where the conditions in subdivision 295-F of the Income Tax Assessment Act 1997 (ITAA 1997) are satisfied for an income year. Such income is commonly referred to as exempt current pension income (ECPI). The ITAA 1997 defines ‘superannuation income stream benefit’ with reference to the ITAR 1997. The meaning of superannuation income stream benefit is set out in regulation 995-1.01. Subregulation 995-1.01(3) of the ITAR 1997 provides: For the purposes of sections 295-385, 295-390, 295-395, 320-246 and 320-247 of the Act, if: (a) a superannuation death benefit that is a superannuation lump sum is paid after the death of a person (the deceased ) using only an amount from a superannuation interest; and (b) immediately before the deceased's death, the superannuation interest was supporting a superannuation income stream payable to the deceased; and (c) the superannuation income stream did not automatically revert to another person on the death of the deceased; the amount paid as the superannuation lump sum, to the extent it is not attributable to any amount (other than investment earnings) added to the superannuation interest on or after the deceased's death, is taken to be the amount of a payment from a superannuation income stream of a superannuation income stream benefit that was payable from the day of the deceased's death until as soon as it was practicable to pay the superannuation lump sum. In other words, where a death benefit is paid using only an amount from the deceased’s superannuation interest that previously supported a superannuation income stream (and the interest was not reversionary) then the payment will be taken to be a payment of a superannuation income stream benefit. This is on the condition that no other amounts (apart from investment earnings) have been added to the superannuation interest following the member's death, as is the case here. However, the payment will only be a superannuation income stream benefit for the period between the member’s death and ‘as soon as it was practicable to pay the superannuation lump sum.’ The Explanatory Statement to the Income Tax Assessment Amendment (Superannuation Measures No. 1) Regulation 2013 (the ES) gives an example which explains this. Example 3 of the ES states: Arthur was a member of a complying superannuation fund who was receiving a superannuation income stream immediately before his death on 1 September 2012. The income stream did not automatically revert to another person on Arthur's death and no amounts (other than investment earnings) were added on or after his death to the superannuation interest that was supporting the income stream. After undertaking a claims staking process, the trustee of the fund determined that the entire value of the deceased member's benefits in the fund would be paid to the deceased's widow as a lump sum. On 20 December 2012, which was in the circumstances as soon as practicable after Arthur's death, a single lump sum of $100,000 was paid to the widow using only an amount from the relevant superannuation interest. For the purposes of the earnings tax exemption, the $100,000 will be taken to be the amount of a superannuation income stream benefit that was payable from 1 September 2012 until 20 December 2012. The word ‘practicable’ is not defined in the ITAR 1997. The Australian Macquarie Dictionary defines ‘practicable’ as ‘capable of being put into practice, done, or effected, especially with the available means or with reason or prudence’. The ES provides a number of examples of where, notwithstanding delay, the payment of a superannuation death benefit will be made ‘as soon as it was practicable’ after a member's death. In this case, the Fund is a single member self-managed superannuation fund. The Deceased Member passed away in the 2015-16 income year. Prior to the Deceased Member’s death, the Fund was supporting a superannuation income stream payable to the Deceased Member. The superannuation income stream did not revert to another person on the death of the Deceased Member. 1. You provided the following reasons for the delay in making the payments to include: ● administrative issues in relation to the handling of the estate of the Deceased Member and a number of complications in dealing with the final inheritance; ● the Trustee suffered (and continues to suffer from) great emotional and mental duress following the nursing of their late sibling and parent; ● the Trustee suffered with their own diagnosed illness and from the emotional stress related to their spouse’s diagnosed illness. 2. In conclusion, given the circumstances following the Deceased Member’s death, the payments in this case may be considered as having been made ‘as soon as it was practicable’. 3. In this case, subregulation 995-1.01(3) of the ITAR 1997 has been satisfied. Therefore, the payments made by the Fund following the Deceased Member’s death will be taken to be superannuation income stream benefits for the purposes of claiming ECPI under subdivision 295-F of the ITAA 1997.