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Edited version of private advice
Authorisation Number: 1051922966653
Date of advice: 24 November 2021
Subject: Superannuation death benefit - dependant status of former spouse
Are you a death benefits dependant of the Deceased according to section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Is the superannuation lump sum death benefit received by you during the 2020-21 income year excluded from assessable income under section 302-60 of the ITAA 1997?
This ruling applies for the following period:
Income year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You are the former spouse of the Deceased.
The Deceased died on DD MM YYYY.
You received a death benefit payment from the Deceased's superannuation fund, the superannuation fund withheld tax from the payment.
You married the deceased on DD MM YYYY and divorced on DD MM YYYY.
You received a letter from your superannuation fund dated DD MM YYYY. The letter advised they would pay you a benefit from the deceased's superannuation entitlement balance as a lump sum death benefit.
The superannuation fund deducted tax from the payment after determining you were not a 'dependant' stating:
'Because you weren't wholly or partially financially dependent on the member at the time of their death, your payment will be subject to PAYG tax.'
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 302
Income Tax Assessment Act 1997 Section 302-60
Income Tax Assessment Act 1997 Section 302-195
Income Tax Assessment Act 1997 Section 307-5
Income Tax Assessment Act 1997 Section 307-65
Income Tax Assessment Act 1997 Section 995-1
Reasons for decision
As a former spouse of the Deceased, you are a 'death benefit dependant' as defined under section 302-195 of the ITAA 1997.
Consequently, the superannuation lump sum death benefit paid to you is not assessable income or exempt income, as per section 302-60 of the ITAA 1997.
Meaning of death benefits dependant
Division 302 of the ITAA 1997 sets out the taxation arrangements that apply to the payment of superannuation death benefits. These arrangements depend on whether the person that receives the superannuation death benefit is a dependant of the deceased and whether the amount is paid as a lump sum superannuation death benefit or a superannuation income stream death benefit.
A superannuation death benefit is defined in subsection 307-5(1) of the ITAA 1997 as:
A payment to you from a superannuation fund, after another person's death, because the other person was a fund member.
A superannuation lump sum is described in subsection 307-65(1) of the ITAA 1997 as a superannuation benefit that is not a superannuation income stream benefit.
The taxable component of a superannuation death benefit paid as a lump sum to a non-dependant beneficiary is assessable income and is taxed under section 302-145 of the ITAA 1997.
Where a person who was a dependant of the deceased receives a superannuation death benefit paid as a lump sum, the death benefit is not assessable income and is not exempt income, under section 302-60 of the ITAA 1997.
Subsection 995-1(1) of the ITAA 1997 states that the term 'death benefits dependant' has the meaning given by section 302-195 of the ITAA 1997. Subsection 302-195(1) of the ITAA 1997 defines a 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.
The term 'spouse' is defined in subsection 995-1 of the ITAA 1997 as:
Spouse of an individual includes:
a) another individual (whether of the same sex or a different sex) with whom the individual is in a relationship that is registered under a State law or Territory law prescribed for the purposes of section 2E of the Acts Interpretation Act 1901 as a kind of relationship prescribed for the purposes of that section, and
b) another individual who, although not legally married to the individual, lives with the individual on a genuine domestic basis in a relationship as a couple.
You had been a spouse of the Deceased as evidence provided. The deceased became your former spouse when you divorced on DD MM YYYY.
Accordingly, you are a 'former spouse' for the purposes of paragraph 302-195(1)(a) of the ITAA 1997 and consequently a 'death benefits dependant' pursuant to section 302-195 of the ITAA 1997.
The superannuation death benefit lump sum paid to you as a dependant of the Deceased, is not assessable income and not exempt income, under section 302-60 of the ITAA 1997.