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Edited version of your written advice
Authorisation Number: 1013080962588
Date of advice: 30 August 2016
Ruling
Subject: Superannuation Death Benefit income stream
Question
Would a death benefit pension that commenced prior to 1 July 2007 be taxable in the hands of the adult child recipient after 1 July 2007?
Answer
No
This ruling applies for the following periods:
The income year ended 30 June 2015; and
The income year ended 30 June 2016
The scheme commences on:
1 July 2014.
Relevant facts and circumstances
The Taxpayer is the child of the Deceased.
Prior to their death, the Deceased received a pension which commenced in 199X.
The Deceased passed away during the 200X-0X income year and was over 60 years of age when they died. The Taxpayer was the reversionary beneficiary of the pension income stream.
At the time when the Deceased passed away, the Taxpayer was under 60 years of age.
The superannuation income stream does not contain an untaxed element.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 302-65
Income Tax Assessment Act 1997 Subsection 302-195(1)
Income Tax Assessment Act 1997 Subsection 995-1(1)
Income Tax Assessment Act 1997 (Transitional Provisions) Subsection 302-195
Reasons for decision
Summary
The Taxpayer satisfies the extended meaning of a death benefits dependant for a superannuation income stream under section 302-195 of the Income Tax (Transitional Provisions) Act 1997.
The superannuation death benefit income stream is non-assessable and non-exempt income under section 302-65 of the Income Tax Assessment Act 1997 (ITAA 1997). Therefore no tax applies on this amount.
Detailed Reasoning
Death Benefit Dependant in relation to the superannuation death benefits
Subsection 995-1(1) of the ITAA of 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 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 of former spouse;
(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 facts provided give no indication that the Taxpayer aligns with the aforementioned criteria of a 'death benefits dependant' as listed by section 302-195 of ITAA 1997.
However, the definition of a dependent in relation to a reversionary superannuation income stream has been expanded by section 302-195 of the Income Tax (Transitional Provisions) Act 1997. This section states:
For the purposes of Division 302 of the Income Tax Assessment Act 1997, treat a person who receives a superannuation income stream benefit as a death benefits dependant in relation to the benefit if:
(a) The benefit is a superannuation death benefit; and
(b) Just before 1 July 2007, the superannuation income stream from which the benefit is paid was covered by paragraph (a) of the definition of death or disability annuity/pension in section 159SJ of the Income Tax Assessment Act 1936.
As identified by the facts, the Taxpayer commenced to receive a reversionary pension prior to 1 July 2007.
Furthermore, a 'death or disability annuity/pension is defined in former section 159SJ of the ITAA 1936 as:
(a) An annuity or superannuation pension provided to the person in the event of the death of another person…
Consequently, The Taxpayer satisfies the requirements of section 302-195 of the Income Tax (Transitional Provisions) Act 1997 and will be treated as a death benefit dependant in respect of their superannuation income stream.
Tax Treatment of a superannuation income stream death benefit
The tax treatment of superannuation death benefit income stream is outlined in section 302-65 of the ITAA 1997.
Under section 302-65 of the ITAA 1997, certain superannuation income stream benefits paid from a complying superannuation fund are tax free:
A * superannuation income stream benefit that you receive because of the death of a person of whom you are a * death benefit dependant is not assessable income and is not * exempt income in either or both of the following cases:
(a) You are 60 years or over when you receive the benefit;
(b) The deceased died aged 60 or over.
*To find definitions of asterisked terms, see the Dictionary, starting at 995-1
The facts show that the Deceased was over 60 years old when they passed away and The Taxpayer remains the sole death benefit dependant of the allocated pension. Consequently, section 302-65 has been satisfied and the income you receive from this pension is non-assessable and non-exempt income.
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