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Edited version of private advice

Authorisation Number: 1051918745226

Date of advice: 25 November 2021

Ruling

Subject: Superannuation lump sum payment

Question 1

Are the superannuation benefits received after your client passed away considered a superannuation member benefit under section 307-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

This private ruling applies for the following period:

Income year ended 30 June 20XX

The scheme commences on:

1July 20XX

Relevant facts and circumstances

This private ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are different from these facts, this private ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

1.    The deceased suffered from intra-abdominal sepsis and cancer.

2.    On X XXXXXX 20XX the deceased lodged a Superannuation withdrawal application with Super Fund.

3.    On X XXXXXX 20XX the deceased passed away in hospital at the age of 75.

4.    On X XXXXXX 20XX Super Fund paid the Superannuation Lump sum payment of $xx into the deceased's nominated bank account.

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 subsection 302-60

Income Tax Assessment Act 1997 subsection 302-145(2)

Income Tax Assessment Act 1997 subsection 302-195

Income Tax Assessment Act 1997 section 303-10

Income Tax Assessment Act 1997 section 307-5(1)

Income Tax Assessment Act 1997 section 307-5(4)

Reasons for decision

Section 307-5 of the ITAA 1997 defines what is a superannuation benefit. A superannuation member benefit is defined in subsection 307-5(2) as a payment defined in column 2 of the table in subsection 307-5(1). Item 1 outlines that a superannuation fund payment is a superannuation member benefit when it is 'a payment to you from a superannuation fund because you are a fund member.'

A superannuation death benefit paid is defined in subsection 307-5(4) of the ITAA 1997 as a payment described in column 3 of the table in subsection 307-5(1). Item 1 outlines that a superannuation fund payment is a superannuation death benefit when it is 'a payment to you from a superannuation fund, after another person's death, because the other person was a fund member.'

In this case, the member died in the 20XX-XX financial year, prior to the payment being made by the Trustee of the Fund. The payment was made after the member died so cannot be considered a member benefit as it will now be distributed to the beneficiaries of his estate.

Therefore, the payment is a superannuation death benefit as defined in Column 3 of Item 1 of the table under subsection 307-5(1) of the ITAA 1997.

Taxation Consequences for the Estate

Subsection 101A(3) of the Income Tax Assessment Act 1936 (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.

Subsection 101A(3) of the ITAA 1936 specifically brings into the assessable income of the trust 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.

The facts of this case show that, although the deceased was in the process of claiming a benefit prior to their death, the lump sum payment was made after the deceased's death.

Accordingly, the payment, a superannuation death benefit, cannot be viewed as a payment from the Fund to the deceased made prior to the date of death but as a payment of the deceased's benefits from the Fund to the estate which will ultimately be distributed to his beneficiaries. It will need to be taxed by the estate according to the status of the beneficiaries, that is, dependants or non-dependants.