Private ruling: Superannuation death benefit
Published: April 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Can a superannuation benefit paid after the death of the taxpayer be treated as a lump sum superannuation benefit made before the date of death? | A1: No.

Relevant facts and circumstances: The Member (the Deceased) was over 65 years of age. The Deceased was a member of a complying superannuation fund (the Fund). Two days prior to death, the Deceased faxed a withdrawal request to the Fund to withdraw the full balance of their superannuation fund. The Deceased passed away several days after faxing the above withdrawal request. One the day after the Deceased passed away, the Fund processed the Deceased's withdrawal request and treated the entire payment as tax-free. At the time of the payment the Fund was not aware of the passing of the Deceased. The proceeds of the withdrawal from the Fund were paid into the Deceased's personal bank account a week following the passing of the Deceased. On the same day, the legal representative received instructions from the executors to act. The Deceased's account with the Fund had already been closed as per the Deceased's request prior to their death. The death certificate was issued more than a month after the death of the Deceased. You stated that the Deceased's intent was to have the funds withdrawn prior to their death, given that prior to their death, they had applied to the Fund to withdraw their superannuation balance and have the income assessed in their individual income tax return and not in the Estate tax return. You also claim that the Fund has processed the payment as a pre-death application and will not be issuing any employment termination payment summaries. There was no binding death benefit nomination held by the Fund at the time the member passed away.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 101A(3) | Income Tax Assessment Act 1997 Section 302-10. | Income Tax Assessment Act 1997 Subsection 302-10(2). | Income Tax Assessment Act 1997 Subsection 302-10(3). | Income Tax Assessment Act 1997 Section 307-5(1). | Income Tax Assessment Act 1997 Section 307-5(4).

Reasons for decision: Summary: A superannuation benefit paid after the death of the Deceased cannot be treated as a lump sum superannuation benefit made before the date of death. Accordingly, for the relevant income year the payment will be income of the deceased estate to which no beneficiary is presently entitled. Whether or not the trustee of the deceased estate will be liable for tax will depend on the extent (if any) to which dependant beneficiaries are likely to benefit from the payment. | Detailed Reasoning - Application of the superannuation death benefit provisions: A superannuation death benefit paid is defined in subsection 307-5(4) of the Income Tax Assessment Act 1997 (ITAA 1997) as a payment described in Column 3 of the table in subsection 307-5(1) which states: A payment to you from a superannuation fund, after another person's death, because the other person was a fund member. Further a superannuation death benefit must be paid as either a superannuation lump sum or a superannuation income stream. In this case, the Deceased, who passed away during the relevant income year, was a member of a complying superannuation fund. Although the benefits in the fund were paid as a member benefit rather than a superannuation death benefit, the payment can only be treated as a payment to the estate as the member was deceased at the time the payment was made. Therefore, the payment made is a superannuation death benefit, as noted above, under subsection 307-5(1) of the ITAA 1997 made to the estate. The relevant provisions of Division 302 of the ITAA 1997 require examination to determine the tax treatment of the payment. | Detailed Reasoning - Application of Subdivision 302-A of the ITAA 1997: As previously mentioned, the payment in this case was made to the deceased estate and accordingly section 302-10 of the ITAA 1997 applies. Under section 302-10 of the ITAA 1997, the taxation arrangements for superannuation death benefits paid to a trustee of a deceased estate are determined in line with the taxation arrangements that would otherwise apply to the person/s intended to benefit from the deceased estate. This means that where a death benefit dependant of the deceased is expected to receive part or all of a superannuation death benefit, it will be subject to tax as if it were paid directly to a death benefit dependant of the deceased. However, it is also clear that as the death benefit dependant is not presently entitled to the superannuation death benefit at that time, it follows that the death benefit does not form part of the death benefit dependant's assessable income [subsection 302-10(2) of the ITAA 1997 and subsection 101A(3) of the Income Tax Assessment Act 1936 (ITAA 1936)]. Where a person, who is not a death benefit dependant, is expected to receive part or all of a superannuation death benefit, the death benefit will be subject to tax as if it were paid to a non-dependant of the deceased. Again, it is also clear that as the non-dependant is not presently entitled to the superannuation death benefit at that time, it follows that the death benefit does not form part of the non-dependant's assessable income [subsection 302-10(3) of the ITAA 1997 and subsection 101A(3) of the ITAA 1936]. In this case, the payment received is a superannuation death benefit that was made to the deceased estate. Whilst the Fund processed the payment as a tax-free superannuation lump sum with the intention to make the payment to the deceased while they were alive, this does not, however, alter the nature of the payment as a superannuation death benefit. A payment made after the death of the recipient can only be made either to the recipient's estate or, if the superannuation fund rules allow, to the recipient's dependants. Therefore, the payment received by the deceased from the Fund during the relevant income year is a superannuation death benefit made to the deceased estate. Consequently, for the relevant income year, the payment will be income of the deceased estate to which no beneficiary is presently entitled. | Detailed Reasoning - Taxation Consequences for the Deceased Estate: Subsection 101A(3) of the ITAA 1936 states: To avoid doubt, if in the year of income an amount is included in the assessable income of a deceased taxpayer under Division 82 or 302 of the Income Tax Assessment Act 1997 in respect of a payment received by the trustee of the estate of the deceased taxpayer, that amount shall be included in the assessable income of that year of income of the trust estate. As can be seen subsection 101A(3) of the ITAA 1936 specifically brings into the assessable income of a deceased estate the amount of a superannuation death benefit received after the death of a taxpayer, and provides that the amount is income to which no beneficiary is presently entitled. The result of this provision is that any tax liability raised in respect of the death benefit will be borne by the trustee of the estate rather than the beneficiaries. In this case, the superannuation payment was a death benefit that was made directly to the deceased estate as there was no binding death benefit direction held by the Fund at the time of making the payment. Accordingly, the superannuation death benefit made will be taxable in the hands of the trustee of the deceased estate.