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Authorisation Number: 1011576244097

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Ruling

Subject: Superannuation death benefits

Issue

Question

Are the beneficiaries of the deceased estate (the estate) considered to be death benefits dependants in accordance with section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Advice/Answer

Yes.

This ruling applies for the following periods

For the year ended 30 June 2009

For the year ended 30 June 2010

The scheme commenced on

1 July 2008

Relevant facts

The deceased was a serving member of the Australian Defence Force.

The serving member had been nominated for deployment overseas.

As part of preparation for deployment, the serving member was required to attend a training course.

While travelling the serving member was killed.

The serving member's travel had been approved by a military superior.

In a letter, a military superior confirmed the serving member died, while undertaking authorised travel. The military superior also confirmed the serving member was on duty.

In a certificate issued by the Court, it confirms that the serving member died in the relevant income year and that administration of the serving member's estate was granted by the Court.

A superannuation death benefit was paid by the scheme (the scheme) to the trustee of the serving member's estate.

Later, a further death benefit payment was made from the scheme to the serving member's estate.

Under the terms of the serving member's will, the serving member's parents and siblings are equal beneficiaries in the estate.

The serving member was single and had no dependants at the time of death.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 302

Income Tax Assessment Act 1997 Subdivision 302D

Income Tax Assessment Act 1997 Section 302-10

Income Tax Assessment Act 1997 Subsection 302-10(1)

Income Tax Assessment Act 1997 Subsection 302-10(2)

Income Tax Assessment Act 1997 Subsection 302-10(3)

Income Tax Assessment Act 1997 Section 302-60

Income Tax Assessment Act 1997 Section 302-195

Income Tax Assessment Act 1997 Subsection 302-195(2)

Income Tax Assessment Act 1997 Subsection 302-195(3)

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

Income Tax Assessment Act 1997 Section 307-65

Income Tax Assessment Amendment Regulations 2007 (No. 7)

Income Tax Assessment Amendment Subregulations 302-195(1)

Income Tax Assessment Amendment Subregulations 302-195(2)

Income Tax Assessment Amendment Subregulations 302-195(3)

Income Tax Assessment Amendment Subregulations 302-195(4)

Income Tax Assessment Amendment Subregulations 302-195(5)

Income Tax Assessment Amendment Subregulations 302-195(6)

Income Tax Assessment Amendment Subregulations 302-195(7)

Income Tax Assessment Amendment Subregulations 302-195(8)

Income Tax Assessment Amendment Subregulations 302-195(9)

Income Tax Assessment Amendment Subregulations 302-195(10)

Reasons for decision

Summary

The serving member died while performing the duties of a military person. Therefore it is accepted that the serving member died in the line of duty as a member of the Australian Defence Force.

As the serving member's estate received superannuation death benefits because of the serving member's death in the line of duty as a member of the Australian Defence Force, the non-dependant beneficiaries are treated as death benefit dependants for tax purposes in respect of the lump sum death benefits.

Therefore the superannuation death benefits are not assessable income and are not exempt income in the hands of the trustee of the estate. As the death benefits are tax-free, the benefits are not included in the assessable income of the estate for each income year the payments were made and each beneficiary will not be liable to pay income tax on each share of the benefit.

Detailed reasoning

Division 302 of the ITAA 1997 applies to superannuation death benefits paid from complying superannuation funds after 1 July 2007, and governs the taxation treatment of superannuation lump sum death benefits received by death benefits dependants and non-dependants. The term 'death benefits dependant' is defined in Subdivision 302 of the ITAA 1997.

Superannuation lump sum

A superannuation lump sum is described in section 307-65 of the ITAA 1997 as a 'superannuation benefit' that is not a superannuation income stream.

The table contained in subsection 307-5(1) of the ITAA 1997 identifies the different types of superannuation benefits. One such payment is a superannuation death benefit. A superannuation death benefit is described in Column 3 of the table in subsection 307-5(1) as including:

A payment to you from a superannuation fund, after another person's death, because the other person was a fund member.

Prior to the serving member's death, the serving member was a member of a scheme (the scheme). The scheme is a complying superannuation fund. As a result of the serving member's death, superannuation death benefits were paid by the scheme in the relevant income years in respect of the serving member.

The superannuation lump sum benefits were paid to the trustee of the estate. The beneficiaries of the estate are the serving member's parents and siblings. The Administrator of the estate is a parent of the serving member.

The lump sum benefits were paid by the scheme after the serving member's death, because the serving member was a fund member. Therefore the benefits are superannuation death benefits within the meaning of subsection 307-5(1) of the ITAA 1997.

Superannuation death benefits paid to the trustee of a deceased estate

Section 302-10 of the ITAA 1997 deals with superannuation death benefits paid to the trustee of a deceased estate. Subsection 302-10(1) of the ITAA 1997 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 superannuation lump sum death benefits from the scheme were made to the trustee of the estate section 302-10 of the ITAA 1997 will apply.

In accordance with subsection 302-10(2) of the ITAA 1997, the taxation arrangements for superannuation death benefits paid to a trustee of a deceased estate are determined in accordance with the taxation arrangements that would otherwise apply to the person or persons otherwise intended to benefit from the deceased estate.

This means that, where a dependant of the deceased receives or will receive part or all of a superannuation death benefit, the lump sum will be subject to tax as if it were paid to a dependant of the deceased, and the death benefit is taken to be income to which no beneficiary is presently entitled (subsection 302-10(2) of the ITAA 1997).

Similarly, where a person who is not a dependant receives or will receive part or all of a superannuation death benefit, the benefit will be subject to tax as if it were paid to a non-dependant of the deceased to that extent, and the benefit is taken to be income to which no beneficiary is presently entitled (subsection 302-10(3) of the ITAA 1997).

Superannuation death benefits will be treated concessionally if dependants of the deceased will benefit from the estate. Where a person receives a superannuation lump sum death benefit and that person was a dependant of the deceased, the benefit is not assessable income and is not exempt income, that is, it is tax-free.

Death Benefits Dependant in relation to the superannuation death benefits

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.

Section 302-195 of the ITAA 1997 defines the meaning of death benefits dependant and states:

(1) 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.

(2) For the purposes of this Division, treat an individual who receives a superannuation lump sum because of the death of another person as a death benefits dependant of the deceased person in relation to the lump sum if the deceased person died in the line of duty (see subsection (3)) as:

(a) a member of the Defence Force; or

(b) a member of the Australian Federal Police or the police force of a State or Territory; or

(c) a protective service officer (within the meaning of the Australian Federal Police Act 1979).

(3) For the purposes of subsection (2), a person died in the line of duty if the person died in the circumstances specified in the regulations.

Subregulation 302-195(1) of the Income Tax Assessment Amendment Regulations 2007 (No. 7) (ITAAR) states:

For subsection 302-195(3) of the Act, this regulation sets out circumstances in which a deceased person mentioned in subsection 302-195(2) of the Act (a military or police person) died in the line of duty:

(a) in Australia or on overseas service - subregulations (2), (3), (4), (5), (9) or (10); and

(b) on overseas service - subregulations (6), (7) and (8).

Subregulation 302-195(2) of the ITAAR states:

A circumstance is that the military or police person died while performing the duties of a military or police person.

Subsection 302-195(2) of the ITAA 1997 applies to ensure that non-dependants of defence force personnel who die in the line of duty will be treated as death benefits dependants in relation to a superannuation lump sum death benefit paid in respect of the deceased defence force member.

A non-dependant could, for example, be the parent or sibling of the deceased defence force member concerned.

Applying the above legislation to this case, the deceased was a serving member of the Australian Defence Force and as such meets the requirements of paragraph 302-195(2)(a) of the ITAA 1997 (that is, a member of the Defence Force).

For the beneficiaries of the serving member's estate to be considered death benefits dependants, the deceased, as a member of the Defence Forces, must have 'died in the line of duty'. As noted above subregulation 302-195(1) of the ITAAR lists the circumstances where a person has died in the line of duty. The serving member's military superior confirmed in a letter that the serving member was on duty at the time of the serving member's death. Given these facts, the serving member was performing the duties of a military person and clearly meets the requirements of subregulation 302-195(2) of the ITAAR.

Death benefits dependants of the deceased

As the estate received the superannuation lump sum payments from the scheme because of the death of the serving member in the line of duty as a member of the Defence Force, and as the beneficiaries will benefit from the lump sum death benefits paid by the scheme in respect of the serving member, subsection 302-195(2) of the ITAA 1997 treats the beneficiaries as the death benefits dependants of the serving member within the meaning of subsection 302-195(2).

The treatment of the superannuation lump sum death benefits paid to the estate

The superannuation payments were paid by the scheme to the estate in the relevant income years respectively.

Section 302-60 of the ITAA 1997 provides that where a person receives a superannuation lump sum death benefit and the recipient was a death benefits dependant of the deceased, the superannuation lump sum is not assessable income and is not exempt income in the recipient's hands. It follows, therefore, that the recipient is not liable to pay tax on the superannuation lump sum death benefit.

Therefore in accordance with subsection 302-10(2) of the ITAA 1997, the benefits are treated as superannuation death benefits to which section 302-60 of the ITAA 1997 applies and are not assessable income and are not exempt income in the hands of the trustee of the estate.

Consequently, the payments paid by the scheme to the estate are not included in the assessable income of the estate under subsection 302-10(2) of the ITAA 1997 and the benefits should not be included in the income tax return of the estate.

When the death benefits are paid to the beneficiaries by the estate, the beneficiaries will not be liable to pay income tax on each beneficiary's share of the benefit, as each portion of the benefit will represent a distribution of the corpus of the estate.

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