Private ruling: Superannuation death benefit and subsequent re-contribution
Published: June 2012
Ruling period: Year ending 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Is the payment made to you in the 2011-12 income year a superannuation death benefit and exempt from tax? | A1: Yes. | Q2: Can you contribute an amount out of the proceeds of the payment back into the superannuation fund for the 2011-12 income year? | A2: Yes.

Relevant facts and circumstances: You and your late spouse were the members and trustees of a superannuation fund (the Fund). The Fund, which is a self managed superannuation fund (SMSF), was established after 1 July 1999 income year. Copies of the Fund's Trust Deeds (the Deeds) have been provided. The Deeds show: · the Fund was established for the purposes of providing superannuation benefits for its members; and · guidelines dealing with the Fund's structure and operation which included clauses relating to: · the Fund's acceptance of contributions; · situations under which benefits are paid to members, for example, death, retirement etc; and · that benefits can be paid in the form of an income stream or lump sum. In the 2010-11 income year your spouse passed away. At the time of your spouse's death the Fund was still in accumulation phase. Subsequent to your spouse's death, you updated the Fund to take into account your spouse's death. In the 2011-12 income year, your spouse's benefits in the Fund were transferred out of the Fund and deposited into a bank account outside of superannuation. You are over 50 years of age and, prior to 30 June 2012, intend to make a contribution into the Fund.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 4-5 | Income Tax Assessment Act 1997 Section 292-80 | Income Tax Assessment Act 1997 Subsection 292-85(2) | Income Tax Assessment Act 1997 Subsection 292-85(3) | Income Tax Assessment Act 1997 Subsection 292-85(4) | Income Tax Assessment Act 1997 Division 302 | Income Tax Assessment Act 1997 Section 302-60 | Income Tax Assessment Act 1997 Section 302-195(1) | Income Tax Assessment Act 1997 Section 307-5 | Income Tax Assessment Act 1997 Subsection 307-5(1) | Income Tax Assessment Act 1997 Subsection 307-5(4) | Superannuation Industry (Supervision) Regulations 1994 Subregulation 7.04(1)

Reasons for decision: Summary: The lump sum death benefit you received from the superannuation fund (the Fund) is all tax-free as you were a death benefits dependant of the deceased. Further, you are not precluded from making a contribution to the Fund out of the proceeds of the lump sum death benefit. | Detailed Reasoning - Superannuation death benefits: Division 302 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the taxation arrangements that apply to the payment of superannuation death benefits. These arrangements depend on whether the person who receives the superannuation death benefit is a death benefits dependant of the deceased or not; and whether the amount is paid as a superannuation lump sum death benefit or a superannuation income stream death benefit. Subsection 302-195(1) of the ITAA 1997 defines death benefits dependant as follows: A death benefits dependant, of a person who has died, is: (a) the deceased person's spouse or former spouse; or (b) the deceased person's child, aged less than 18; or (c) any other person with whom the deceased person had an interdependency relationship under section 302-200 just before he or she died; or (d) any other person who was a dependant of the deceased person just before he or she died. In this case, as you are the spouse of the deceased, you satisfy the definition of a death benefits dependant under paragraph (a) of the above definition. | Detailed Reasoning - Taxation treatment of superannuation death benefits: The table in subsection 307-5(1) of the ITAA 1997 lists the various types of superannuation benefits. Item 1, column 3 of the table defines a 'superannuation death benefit' as being: A payment to you from a superannuation fund, after another person's death, because the other person was a fund member. Further, subsection 307-5(4) of the ITAA 1997 states: A superannuation death benefit is a payment described in column 3 of the table In this case it is evident that the lump sum payment (the payment) from the superannuation fund (the Fund) arises from the death of your spouse (the deceased) and your spouse having been a member of the Fund. In relation to 'you', section 4-5 of the ITAA 1997 defines this expression as applying to entities generally unless the application is expressly limited. Therefore 'a payment to you', as specified in subsection 307-5(1) of the ITAA 1997, can refer to a payment to a beneficiary such the spouse of a deceased member. In view of the above, the payment transferred out of the Fund to a bank account satisfies the definition of a 'superannuation death benefit' as it is payment from a superannuation fund which was made after the deceased's death and the deceased was a fund member. Further, it should be noted that in your case, the fact that the payment was made more than 12 months after the deceased's death, does not preclude the payment from being treated as a death benefit payment. As the payment you received is a lump sum superannuation death benefit and you were a death benefits dependant of the deceased, all of the payment is tax-free (section 302-60 of the ITAA 1997). | Detailed Reasoning - Contributions to the Fund: Whether a regulated superannuation fund is able to accept contributions is determined under the Superannuation Industry (Supervision) Act 1993 (SIS Act) and the Superannuation Industry (Supervision) Regulations 1994 (SISR). The SIS Act and SISR are administered by the Commissioner only so far as they relate to self managed superannuation funds (SMSFs). Authority to make decisions under these legislative provisions, as they relate to non-SMSFs, rest with the Australian Prudential Regulation Authority (APRA). Subregulation 7.04(1) of the SISR deals with the acceptance of contributions by regulated superannuation funds. For a fund to accept a contribution made in respect of a member who has not reached 65 years of age, Item 1 in subregulation 7.04(1) shows that a member can make a contribution to a fund provided it is made in respect for the member. In your case the facts show that you satisfy subregulation 7.04(1) of the SISR. Accordingly, it is considered that there is no restriction to you making a contribution to the Fund out of the proceeds of the superannuation death benefit. Notwithstanding there is no restriction to you making a contribution to the Fund, it should be noted that there exist annual concessional and non-concessional contribution caps. | Detailed Reasoning - Non-concessional contributions: In view of the amount you intend to contribute to the Fund, it is considered that you want the contribution to be treated as a non-concessional contribution. Non-concessional contributions include (among others): · personal contributions for which an income tax deduction is not claimed; · contributions a person's spouse makes to the person's superannuation fund account (spouse contributions). and · transfers from foreign superannuation funds (excluding amounts included in the fund's assessable income). Non-concessional contributions made to a complying superannuation fund are subject to an annual cap (subsection 292-85(2) of the ITAA 1997). For a person who is 50 years of age or more their non-concessional contributions cap for the 2011-12 income year is $150,000. A taxpayer will be taxed on non-concessional contributions over the cap at the rate of 46.5% (section 292-80 of the ITAA 1997). | Detailed Reasoning - The bring-forward provisions: Further to the above, it should be noted as a concession to accommodate larger contributions, persons under age 65 in a financial year are able to 'bring forward' future entitlements up to two years worth of non-concessional contributions. This means a person under age 65 will be able to contribute non-concessional contributions totalling $450,000 over three income years without exceeding their non-concessional contributions cap (subsections 292-85(3) and (4) of the ITAA 1997). The bring-forward will be triggered automatically when contributions in excess of the annual non-concessional contributions cap are made in an income year by a person who is under age 65 at any time in a year where a bring forward has not already commenced. Where a bring-forward has been triggered, the two future years' entitlements are not indexed.

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