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Edited version of your written advice
Authorisation Number: 1051252950830
Date of advice: 17 July 2017
Ruling
Subject: Superannuation death benefits
Question 1
Is the Beneficiary a 'death benefits dependant’ of the Deceased in accordance with section 302-195 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes
Question 2
Is the Trustee of the Deceased’s Estate liable to pay tax on the superannuation lump sum death benefit payment received?
Answer
No
This ruling applies for the following period:
Income year ending 30 June 2017
The scheme commences on:
1 July 2016
Relevant facts and circumstances
The Beneficiary is a child of the Deceased aged over 18 years at the time of the Deceased’s death.
The Beneficiary had resided with the Deceased for a period of three months prior to the Deceased’s death.
Prior to this, the Beneficiary moved out to a rental property for one year. Apart from this period, the Beneficiary had resided with the Deceased from birth.
When the Beneficiary moved out of home for a year, the Deceased paid the applicable bond on the rental property.
At the time of the Deceased’s death, the Beneficiary was working on a part-time/casual basis.
The Deceased paid for all groceries and utilities, with the Beneficiary occasionally providing some funds towards these expenses.
In addition, the Deceased also provided the Beneficiary with cash amounts on a regular basis as well as paying the Beneficiary’s car registration.
Since the Deceased’s death, the Beneficiary has relied on interim distributions from the Deceased’s Estate to maintain their standard of living.
The Deceased’s superannuation fund (the Fund) made a lump sum superannuation death benefit payment (the Benefit) to the Trustee of the Deceased Estate.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 302-10
Income Tax Assessment Act 1997 section 302-60
Income Tax Assessment Act 1997 section 302-140
Income Tax Assessment Act 1997 section 302-145
Income Tax Assessment Act 1997 section 302-195
Income Tax Assessment Act 1997 section 302-200
Reasons for decision
Summary
The Beneficiary is a 'death benefits dependant’ of the Deceased as they were a 'dependant’ of the Deceased just before they died, pursuant to section 302-195 of the ITAA 1997.
Therefore, in accordance with section 302-60 of the ITAA 1997, the Benefit received by theTrustee of the Deceased’s Estate from the Fund is not assessable income and is not exempt income. That is, the Benefit is tax-free.
Detailed reasoning
Subsection 302-195(1) of the ITAA 1997 defines a 'death benefits dependant’ of a person who has died 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 just before he or she died.
*To find definitions of asterisked terms, see the Dictionary, starting at 995-1.
To conclude that the Beneficiary is a 'death benefits dependant’ of the Deceased, it must be established that the Beneficiary was a 'dependant’ of the Deceased just before the Deceased died.
Relevantly, ATO Interpretative Decision 2014/22 Income Tax: death benefits dependant- adult child caring for a terminally ill parent considered the scope of paragraph 302-195(1)(d), stating:
The definition of death benefits dependant in paragraph 302-195(1)(d) does not stipulate the nature or degree of dependency, but it is generally accepted that this refers to financial dependence and it is a condition that must exist in relation to the taxpayer at the time of the deceased’s death.
In the case of Malek (as Trustee for the Estate of Antoine Malek) v Federal Commissioner of Taxation 99 ATC 2294 (Malek) Senior Member Pascoe considered the standard of dependence which must exist, stating at paragraph 10:
In my view, the relevant financial support is that required to maintain a person’s normal standard of living and the question of fact to be answered is whether the alleged dependant was reliant on the regular continuous contribution of the other person to maintain that standard.
The Beneficiary was reliant on the Deceased for basic necessities such as food and shelter as well as the regular continuous contributions of money to maintain the standard of living to which they were accustomed.
Consequently, as the Beneficiary was a financial dependant of the Deceased, it is considered the Beneficiary is a 'death benefits dependant’ of the Deceased for the purposes of section 302-195 of the ITAA 1997.
Death benefits paid to the trustee of a deceased estate
Subsection 302-10(2) of the ITAA 1997 states that:
To the extent that 1 or more beneficiaries of the estate who were death benefits dependants of the deceased have benefited, or may be expected to benefit, from the * superannuation death benefit:
(a) the benefits is treated as if it had been paid to you as a person who was a death benefits dependant of the deceased; and
(b) the benefit is taken to be income to which no beneficiary is presently entitled.
It is considered that the Beneficiary is a 'death benefits dependant’ of the Deceased. Thus, the Benefit paid to the Trustee of the Deceased’s Estate is treated as if it had been paid to a 'death benefits dependant’ of the Deceased.
Once the payment is made from the Estate to the relevant beneficiary, it will not need to be included as assessable income in that beneficiary’s tax return as the payment represents a distribution of the Estate.
Lump sum death benefits to dependants
Section 302-60 of the ITAA 1997 states that:
A *superannuation lump sum that you receive because of the death of a person of whom you are a *death benefits dependant is not assessable income and is not *exempt income.
As such, the payment of the Benefit to the Trustee of the Deceased’s estate will be not assessable income and is not exempt income. That is, the Benefit will be tax-free.
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