ATO Interpretative Decision
ATO ID 2015/17
Income taxIncome tax: complying superannuation fund: deduction for future liability to pay death benefits- section 295-470 of the Income Tax Assessment Act 1997
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Can a trustee of a complying superannuation fund make a choice under subsection 295-465(4) of the Income Tax Assessment Act 1997 (ITAA 1997) to claim a deduction under section 295-470 of the ITAA 1997 instead, after the death of an insured fund member?
Yes. A valid choice can be made under subsection 295-465(4) of the ITAA 1997 by the trustee after the death of the insured fund member.
The corporate trustee of a complying superannuation fund (the trustee) had claimed deductions for life insurance premiums for income years prior to the 2011-2012 income year in accordance with the requirements of section 295-465 of the ITAA 1997.
In the 2011-2012 income year an insured fund member died. The deceased member was employed up until their date of death.
The trustee received a life insurance payout in the 2011-2012 income year after the death of the member.
The trustee paid a superannuation death benefit in the 2011-2012 income year in consequence of the termination of the member's employment to dependants of the deceased member.
Minutes of a meeting of the directors of the trustee held after the death of the insured member recorded that the trustee made a choice to claim a deduction for an amount under section 295-470 for the 2011-2012 income year, and not for an amount under section 295-465.
Reasons for Decision
Subsection 295-465(1) of the ITAA 1997 relevantly allows a complying superannuation fund to deduct a proportion of the premiums paid for life insurance policies that cover the fund's liabilities to pay superannuation death benefits to fund members. Paragraph 295-460(a) of the ITAA 1997 stipulates that section 295-465 applies to a superannuation death benefit.
Subsection 295-465(4) of the ITAA 1997 gives the trustee of a complying superannuation fund the choice not to deduct amounts for an income year under section 295-465 but to deduct amounts based on the fund's future liability to pay the benefits under section 295-470 of the ITAA 1997 instead.'
Section 295-465 of the ITAA 1997 does not prescribe time limits within which a trustee must make a choice to claim a deduction under section 295-470 of the ITAA 1997. There is no express stipulation that the choice under subsection 295-465(4) of the ITAA 1997 must be made prior to a member's death.
Division 295 of the ITAA 1997 was introduced as part of the re-write of the superannuation laws from Part IX of the Income Tax assessment Act 1936 (ITAA 1936) into the ITAA 1997, with effect from 1 July 2007.
Prior to the re-write, the deductibility of costs for meeting a superannuation fund's liability to provide death benefits to fund members, and the associated 'election' (as it was then referred to), were governed by former sections 279 and 279B of the ITAA 1936, and the definition of 'death or disability benefit' in subsection 267(1) of the ITAA 1936.
Prior to the re-write, subsections 279(4) to (6) of the ITAA 1936 set out the requirements for making the 'election'. Repealed subsection 279(4) of the ITAA 1936 disallowed a deduction for death and disability insurance premiums if the trustee elected that subsection 279(4) of the ITAA 1936 did not apply to the trustee in relation to that year of income.
Previous subsection 279(5) of the ITAA 1936 stated that unless the Commissioner determines otherwise, the trustee is taken to have made an election under subsection 279(4) in the ITAA 1936 in respect of the next succeeding year of income.
Subsection 279(6) of the ITAA 1936 stated that an election by the trustee must be made on or before the date of lodgment of the return of income of the trustee for the year of income to which the election relates, or before such later date as the Commissioner allows.
The Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 (the Bill), that introduced Division 295 of the ITAA 1997 indicated that there was no intention to alter the operation of the law under Part IX of the ITAA 1936 except to extend the choice to deduct an amount for the self-employed.
In the absence of any express provision in the law or clear legislative intention to the contrary, an interpretation of the law that reflects the policy under the ITAA 1936 is preferred.
Based on repealed subsection 279(6) of the ITAA 1936, it would generally be expected that the trustee of the superannuation fund would make a choice under subsection 295-465(4) of the ITAA 1997 on or before the time the fund lodges its income tax return for the relevant year to which the choice relates (or before such later date as the Commissioner allows for lodgment of the fund's return).
There is no requirement in the law for the trustee of a complying superannuation fund to make a choice under subsection 295-465(4) of the ITAA 1997 prior to the death of the insured fund member.Date of decision: 31 July 2013
Year of income: Year ended 30 June 2012Income Tax Assessment Act 1936
Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006
Death benefits - superannuation benefits
Superannuation funds - death or disability premiums