Edited version of private advice

Authorisation Number: 1051996092579

Date of advice: 22 June 2022

Ruling

Subject: Death benefit dependant

Question 1

Does the term "child" in section 302-195 of the Income Tax Assessment Act 1997 include a child which is en ventre sa mere and is thereby a dependant and entitled to receive superannuation without deduction of tax?

Answer

Yes. In this case the Commissioner considers that the term "child" in section 302-195 of the ITAA 1997 includes a child en ventre sa mere.

Question 2

Will the Commissioner exercise the discretion under subsection 99A(2) of the Income Tax Assessment Act 1936 (ITAA 1936) to apply progressive concessional rates of tax as per section 99 of the ITAA 1936 to all the income of the Trust Estate for future years until the child attains the age of 18 years?

Answer

Yes. The Trust consists of property that was transferred to the Trustee directly as the result of the death of a person and out of a superannuation fund (per subparagraph 99A(2)(d) and 102AG(2)(c)(v) of the ITAA 1936). After consideration of the relevant factors, the Commissioner is of the opinion that it would be unreasonable that section 99A of the ITAA 1936 should apply to the trust estate in relation to the relevant years of income. Accordingly, section 99 of the ITAA 1936 will apply to all the income of the Trust Estate for future years until the child attains the age of 18 years.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

18 January 20XX

Relevant facts and circumstances

The Child was born XX December 20XX.

Person A and Person B are parents of the Child.

Person A and Person B lived in a de facto relationship from 20XX until they separated in 20XX, after Person B became pregnant but before the birth of the Child.

Person B died in 20XX.

Person B had superannuation with their Company A Super Fund.

An application was made for payment out of his superannuation. The superannuation fund trustee determined, in the light of the fact that Person A and Person B were not living together as at the date of death, to pay the superannuation to Person B as Trustee for the Child.

The sum of $XXX,XXX (Settlement Sum) was paid by Company A Super Fund.

Prior to the payment of the Settlement Sum, Person B was required to enter a Deed of Trust (Trust Deed) which was signed by them in 20XX.

The Trust Deed provides in Clause X that the trust created shall be called the XXXX (the Trust).

Clause Y of the Trust Deed provides, inter alia, the Trustee in its absolute discretion to pay the capital of the Trust Fund or any part of it in or towards the maintenance, education advancement or benefit of the Beneficiary.

Clause Z of the Trust Deed provides, inter alia, the Trustee may each year pay or set aside the net income of the Trust Fund in that year to or for the benefit of the beneficiary.

Person B is the Trustee for the Trust and Child is the Beneficiary of the Trust.

The settlement sum is the Trust Fund.

The Trustee declares that she will hold the Trust Fund and the income from it and with the powers subject to the terms set out in this Trust Deed until the Beneficiary reaches the age of 18 years.

The Trustee proposes to invest the Trust Fund to produce income which under the Trust Deed can be applied for the benefit of the Beneficiary prior to her turning 18.

Assumption

The Beneficiary does not have present entitlement to the Trust Fund and the income from it until they attain the age of 18

Relevant legislative provisions

Income Tax Assessment Act 1997 section 302-195

Income Tax Assessment Act 1997 section 99A

Reasons for decision

Detailed reasoning for Question 1

Section 302-60 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a superannuation death benefit paid as a lump sum to a person who is a death benefit dependant is not assessable income and is not exempt income of the person.

Subsection 302-195(1) of the ITAA 1997 defines a death benefit dependant 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 person just before he or she died.

In respect of the term "child", section 955-1 of the ITAA 1997 provides that without limiting who is a child of an individual, each of the following is the child of an individual:

a)    the individual's adopted child, stepchild or exnuptial child;

b)    a child of the individual's spouse;

c)    someone who is a child of the individual within the meaning of the Family Law Act 1975 (FLA).

Taxation Determination TD 2013/12 Income tax: must a child of a deceased person be aged less than 18 at the time they receive the superannuation lump sum referred to in subsection 303-5(1) of the Income Tax Assessment Act 1997 to satisfy, by virtue of paragraph 302-195(1)(b) of that Act, the requirement in paragraph 303-5(1)(c) that 'you are a death benefits dependant' of that deceased person? provides the Commissioner's view on the testing time for age in respect of a death benefit paid. Paragraph 6 provides that the test is done right before the death of the deceased, that is, where the child of an individual is under the age of 18 right before the person dies, this paragraph will be satisfied.

Though the definition of the term "child" in section 955-1 does not expressly include a child which is en ventre sa mere at the date of the deceased's death, it is sufficiently broad to include such an interpretation, depending on the context in which it is tested.

In reference to paragraph 302-195(1)(b) of the ITAA 1997, though the FLA may inform the meaning of the term "child", there is no intention in the ITAA 1997 to confine the definition to the one contained in the FLA.

A superfund is a trust, albeit one with a restrictive set of statutory requirements in addition to a trust deed. It is therefore worth considering the context in which a person receives a superannuation lump sum, paying special attention to case law that illuminates how and when beneficiaries become entitled to the property of the trust.

Several cases provide insight into the rights of children born alive after the death of a parent:

Re: In the Estate of K (1996) 5 Tas R 365 at 368 - 369

It was concluded that in the case of artificial conception, a child being the product of his father's semen and mother's ovum, implanted in the mother's womb subsequent to the death of his father is, upon birth, entitled to a right of inheritance afforded by law.

This case affirmed the notion, that though an unborn child is not a person in the full legal sense, the child (upon being born alive) is treated as having been living at an earlier point of time, and if by being so treated the child would receive a benefit to which it would have been entitled if actually born at that earlier time.

Re Lawrence [1973] Qd R 201

A child of the testator en ventre sa mére at the date of the testator's death and born after such death is a "child of the testator" within the definition in the Testator's Family Maintenance Act 1914 (Qld), s 3(1A), and, accordingly, competent to bring an application for provision.

V v G [1980]2 NSWLR 366

The case cited the rule of construction which holds that the word "child" generally includes a child en ventre sa mére, unless more narrowly defined in the legislation in question.

Application

In the present case, we are dealing with the identification and rights of beneficiaries. The Commissioner considers that in this context, the definition of the term "child" in the ITAA 1997 should be interpreted broadly to include an unborn child eventually born alive.

Furthermore, the context in which section 302-195 of the ITAA 1997 operates is in the superannuation environment and is one where a trustee's decisions would regularly have bearing on taxation outcomes. In this case, the superannuation fund trustee (Trustee), paid out the superannuation lump sum to the child of the deceased as a dependant and no tax was withheld. In this regard, the Commissioner does not refute the Trustee's treatment of the child which was en ventre sa mere at the relevant date as being a dependant of the deceased.

Accordingly, in this case, the Commissioner considers that the term "child" in section 302-195 of the ITAA 1997 includes a child en ventre sa mere and is thereby a dependant and entitled to receive superannuation without deduction of tax.