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Edited version of private advice
Authorisation Number: 1051838730781
Date of advice: 9 July 2021
Subject: Taxation of superannuation death benefits
For the purposes of subsection 302-10 of the Income Tax Assessment Act 1997 (ITAA 1997), if the amount of a superannuation death benefit paid to the estate of an Individual (the Deceased) is subsequently paid to the legal personal representatives of the spouse of the deceased member, will the benefit be treated as if it had been paid to the deceased member's legal personal representatives as death benefits dependants and be tax-free in the hands of the deceased member's estate?
This ruling applies for the following period:
Income year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
A person (the Deceased) disappeared in the 20XX-XX income year.
The Deceased was a member of a complying super fund (the fund).
The Deceased and another individual (the spouse) were in a de facto relationship
Pursuant to Court Orders (Orders), the Deceased was sworn to have died in the 20XX-XX income year.
Court Orders also state that the spouse was considered to be the Deceased's domestic partner at the time of the death under the definition of the laws in their State.
The Deceased's Last Will and Testament provided that their superannuation benefit would be paid to the spouse provided they survived the Deceased by more than 30 days. If the spouse did not survive the Deceased by 30 days, the residuary estate is bequeathed to the Deceased's parents in equal shares.
The spouse passed away in the 20XX-XX income year.
In the 20XX-XX income year, due to protracted court proceedings Probate for the Deceased's estate was granted to the Deceased's parents. The delay in court proceedings was because the Deceased's body was never found.
The trustee of the Fund was not prepared to make a payment until probate was granted.
In the 20XX-XX income year, the Fund paid an amount to the Deceased's parents as the Legal Personal Representatives of the Deceased.
As the spouse had already passed away, the payment from the Deceased's estate to the spouse's estate will be received by the spouse's legal personal representatives and will form part of the spouse's estate.
The ultimate beneficiaries of the spouse's estate are not death benefits dependants of the spouse.
The Deceased's estate has not yet been finalised.
The Spouse's estate has not yet been finalised.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 302-10
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 section 995-1
Reasons for decision
The spouse is a death benefits dependant of the Deceased, as defined under subsection 302-195-(1)(c) of the ITAA 1997, as an interdependency relationship existed between the spouse and the Deceased just before the Deceased died.
Pursuant to subsection 302-10(2) of the ITAA 1997, the Benefit is to be treated by the trustee (Legal personal representative) of the Deceased estate as if it had been paid to the spouse.
Therefore, under section 302-60 of the ITAA 1997, the Benefit is not assessable income and is not exempt income. That is, it is tax-free.
Superannuation death benefits paid to a trustee of a deceased estate
Section 302-10 of the Income Tax Assessment Act 1997 (ITAA 1997) deals with superannuation death benefits paid to a trustee of a deceased estate.
Subsection 302-10(1) states:
This section applies to you if:
(a) you are the trustee of a deceased estate; and
(b) you receive a superannuation death benefit in your capacity as trustee.
As the payments were superannuation death benefits received from the superannuation funds by the trustee of the Deceased estate, section 302-10 of the ITAA 1997 will apply.
Payment made to a death benefits dependant
Subsection 302-10(2) of the ITAA 1997 states:
To the extent that one or more beneficiaries of the estate who were death benefits dependants of the deceased have benefited, or may be expected to benefit, from the superannuation death benefit:
(a) the benefit is treated as if it had been paid to you as a person who was a death benefits dependant of the deceased; and
(b) the benefit is taken to be income to which no beneficiary is presently entitled.
Under subsection 302-10(2) of the ITAA 1997 where a dependant of the deceased receives or is to receive part or all of a superannuation death benefit, the trustee of the estate will be subject to tax on that part of the benefit paid or to be paid to the dependant as if it were paid to a dependant of the deceased. However, the dependant is not presently entitled to this superannuation death benefit at this time and the benefit therefore does not form part of his or her assessable income.
Superannuation lump sum paid to a death benefits dependant
Section 302-60 of the ITAA 1997 states:
A superannuation lump sum that you receive because of the death of a person of whom you are a death benefits dependant is not assessable income and is not exempt income.
Subsection 302-195(1) of the ITAA 1997 defines a 'death benefits dependant' of a person who has died as:
(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 just before he or she died.
This definition describes a range of possible relationships between a person and the deceased person. Paragraphs (c) and (d) require the relationship to which they refer to exist just before the deceased person's death. However, paragraphs (a) and (b) do not refer to the time as at which a person can satisfy the paragraph.
The definition of a 'death benefits dependant' relates to 'a person who has died', the relevant time at which a person satisfies either of paragraphs (a) or (b) of that definition will be tested at the time of the deceased person's death. Therefore, paragraphs (a) and (b) should be interpreted consistently with paragraphs (c) and (d) as testing a person's satisfaction of either of those paragraphs is just before the deceased person died.
The spouse of an individual, as outlined in section 995-1 of the ITAA 1997, includes an individual who, although not legally married to the individual, lives with the individual on a genuine domestic basis in a relationship as a couple.
Pursuant to the Orders, the spouse is recognised as the Deceased's de facto partner. The judgement was made as there was an enduring domestic arrangement and the parties were living together as a couple. It is reasonable to conclude that, though not legally married, the spouse and the Deceased lived together on a genuine domestic basis in a relationship as a couple. Therefore, the facts show that the spouse was a dependant beneficiary of the Deceased at the time of death.
As the spouse was a death benefit dependant of the Deceased at the time of his death, the payment made on her behalf is not assessable income and is not exempt income in accordance with section 302-60 of the ITAA 1997. That is, the benefit is tax-free.
Pursuant to subsection 302-10(2) of the ITAA 1997, the benefit is to be treated by the trustee (Legal personal representative) of the Deceased estate as if it had been paid to the spouse.