Private ruling: Anti-detriment payment
Published: February 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is the trustee of the Fund considered to have paid a superannuation lump sum because of the death of a person for the purposes of the deduction allowable under section 295-485 of the Income Tax Assessment Act 1997 (ITAA 1997) where the member's account based pension (ABP) is commuted more than two years after the death of the deceased member? | A1: No.

Relevant facts and circumstances: The Fund is a public offer superannuation fund and a complying superannuation fund. The Fund held a life insurance policy on the life of a member and received an insurance payment in 20XX on the grounds of terminal illness. The insurance payment was paid into the member's account whilst in accumulation phase. The member died in early 20YY aged under 55. The deceased member's account was in accumulation phase immediately prior to the date of death. In accordance with the death benefit nomination, the death benefits were payable to the deceased member's spouse who also held an accumulation account in the Fund. Probate was not required and not granted. The death benefits were paid in the form of an account based pension (ABP) to the deceased member's spouse and commenced in mid 20YY (a few months after the date of death of the deceased member). Details of the ABP since commencement date were provided by the Fund trustee including the starting balance and the current balance of the ABP. The member (the deceased member's spouse) is currently aged over 55. The Fund lodged a private ruling request concerning the Fund's eligibility to claim a deduction for an anti-detriment payment in respect of a partial commutation of the existing account based pension (ABP) for the member. The member is contemplating a partial commutation of the ABP and propose to make an election in accordance with regulation 995-1.03 of the ITAR 1997 to have the commutation payment of taxed as a superannuation lump sum benefit . The Fund Rules and Product Disclosure Statement were also provided by the Fund trustee. The Fund Rules included a clause for Death Benefits. The Fund Product Disclosure Statement sets out information regarding the payment of anti-detriment payments. If the Fund is entitled to a tax deduction to fund an anti-detriment payment under section 295-485 of the Income Tax Assessment Act 1997 (ITAA 1997), the Fund proposes to calculate the amount of the anti-detriment benefit in accordance with the formula in ATO ID 2007/219.

Relevant legislative provisions: Section 13 of the Acts Interpretation Act 1901 | Subsection 27(1) of the Income Tax Assessment Act 1936 | Section 27AAA of the Income Tax Assessment Act 1936 | Subsection 27AAA(2) of the Income Tax Assessment Act 1936 | Subsection 27AAA(6) of the Income Tax Assessment Act 1936 | Subsection 27AAA(7) of the Income Tax Assessment Act 1936 | Section 295-485 of the Income Tax Assessment Act 1997 | Paragraph 295-485(a) of the Income Tax Assessment Act 1997 Subsection 307-5(1) of the Income Tax Assessment Act 1997 | Subsection 307-5(3) of the Income Tax Assessment Act 1997 | Subsection 307-5(4) of the Income Tax Assessment Act 1997

Reasons for decision: Summary: In accordance with section 295-485 of the ITAA 1997, a complying superannuation fund can deduct an amount if it pays a superannuation lump sum because of the death of a person to: · the trustee of the deceased estate or · to an individual who is a dependant of the deceased if the lump sum is increased by an amount (or not decreased) so that the amount of the lump sum is the amount that the fund could have paid if no tax had been payable on the contributions made to the fund. Whilst the wording in paragraph 295-485(a) of the ITAA 1997 refers to the payment of a superannuation lump sum 'because of the death of a person', this phrase has no defined meaning in the legislation. However the explanatory memorandum (EM) to the bill which introduced the provision explains the intent of the provision as being that a complying superannuation can deduct an amount to ensure that the amount of death benefits paid to a dependant is not reduced as a result of contributions being taxed. Section 295-485 is titled - Deductions for increased amount of superannuation lump sum death benefit . In accordance with section 13 of the Acts Interpretation Act 1901 , section headings form part of the act. Therefore, for section 295-485 of the ITAA 1997 to apply, the superannuation lump sum made must be a superannuation death benefit, a term which is defined in subsection 307-5(4) as being a payment described in column 3 of the table in subsection 307-5(1) of the ITAA 1997. Relevantly for this case, item 1 of this table states that a payment made to a taxpayer from a superannuation fund, after another person's death, because the other person was a member of the fund, is a superannuation death benefit. In this case, the trustee of the Fund has stated that the deceased member died in early 20YY, and that in accordance with a death benefit nomination, the deceased member's death benefits were payable to the member's spouse, and are being paid in the form an accounts based pension which commenced a few months after the date of death. This would appear to be in accordance with the Death Benefits clause of the Fund's trust deed which states that a member's interest in the Fund ceases immediately on their death and where the trustee holds a binding nomination for the member, the trustee must pay the death benefit to the nominee in the binding nomination, and if the trustee has consented, in the form nominated by the member. The trustee of the Fund has further stated that the beneficiary now wishes to partially commute the pension and take a lump sum. It is this lump sum which will be the subject of the payment under section 295-485 of the ITAA 1997. Subsection 307-5(3) of the ITAA 1997 states that a benefit which arises on the commutation of a superannuation income stream, which would apart from this subsection be a superannuation death benefit, will be a superannuation member benefit if it is paid more than six months after the death of the deceased. Whilst the EM to the bill which introduced subsection 307-5(3) of the ITAA 1997 refers to an income stream which was originally payable to the deceased being the subject of the commutation, it also states that the intent of the subsection was to reflect the arrangements which existed at the time. The provision which formerly dealt with death benefits was section 27AAA of the Income Tax Assessment Act 1936 (ITAA 1936). The table in subsection 27AAA(2) sets out payments considered to be death benefits and relevantly item 4 of the table states that an eligible termination payment (ETP) which met the conditions in paragraphs (d) or (g) (of the definition of ETP found in subsection 27A(1) of the ITAA 1936) would be a death benefit if the conditions in subsections 27AAA(6) and (7) were met. Relevantly, the definition of ETP in paragraph 27(1)(d) of the ITAA 1936 refers to a payment made in respect of the taxpayer in relation to the commutation, in whole or in part, of a superannuation pension that was payable to a taxpayer. The requirements in subsection 27AAA(6) of the ITAA 1936 are met where the pension that was commuted as mentioned in paragraph (d) is either a pension that was payable to the deceased before being payable to the taxpayer, or a pension that became payable to the taxpayer because of the death of another person. Subsection 27AAA(7) of the ITAA 1936 sets out the time period for paying a death benefit under item 4, and relevantly states that it must be paid within 6 months after the death of the deceased person. In this case, the pension became payable to the member because of the death of their spouse (the deceased member), and the superannuation lump sum payment arising on the partial commutation of the pension will be made more than two years after the date of death of the deceased member. Therefore this superannuation lump sum will be a superannuation member benefit and not a superannuation death benefit, and accordingly does not meet the requirements of a lump sum payment made under section 295-485 of the ITAA 1997. The trustee of the Fund is not considered to have paid a superannuation lump sum because of the death of a person for the purposes of the deduction allowable under section 295-485 where the member's pension is commuted more than two years after the death of the deceased member.