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Edited version of your written advice
Authorisation Number: 1051349363989
Date of advice: 13 March 2018
Ruling
Subject: Exempt current pension income
Question
Will the payments made by the trustee for the fund following the death of the sole member satisfy subregulation 995-1.01(3) of the Income Tax Assessment Regulations 1997 (ITAR 1997)?
Answer
Yes.
This ruling applies for the following periods:
Income year ended 30 June 2015
Income year ended 30 June 2016
Income year ended 30 June 2017
The scheme commences on:
1 July 2014
Relevant facts and circumstances
The fund is a single member self-managed superannuation fund.
The sole member of the fund was the Deceased Member.
The Trustee of the Fund is a corporate trustee.
The sole director of the Fund Trustee was the Deceased Member up until their date of death.
The Deceased Member was being paid a superannuation income stream from the Fund prior to death.
The Deceased Member died in 2014.
The income stream did not automatically revert to another person upon the death of the Deceased Member.
There was no valid binding death benefit nomination in place at the date of the Deceased Member’s death.
No amounts other than investment earnings have been added to the Fund on or after the date of the Deceased Member’s death.
The Deceased Member’s children and spouse are the executors of the Deceased Member’s estate.
In 2015 each of the executors consented to their appointment as directors of the Trustee company.
In 2016, probate of the Deceased Member’s estate was granted.
During 2017 the directors of the Fund’s Trustee resolved to pay the superannuation death benefit to the executors of the Deceased Member’s estate and payment was made on that day.
In 2017 you requested the Commissioner to consider whether superannuation death benefits paid to the Deceased Member’s estate, will be treated as paid as soon as was ‘practicable’.
Information provided in relation to your request provides a multiplicity of factors that has resulted in the delay in making any payments from the Fund to date, including:
● a number of complications in dealing with the Deceased Member’s will and estate;
● delays as a result of legal issues surrounding the legitimate appointment of replacement directors of the Trustee company;
● delays in the marketing and sale of the Fund’s principal assets; and
● complications with respect to determining how the superannuation death benefits were to be paid.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subdivision 295-F
Income Tax Assessment Regulations 1997 Regulation 995-1.01
Income Tax Assessment Regulations 1997 Subregulation 995-1.01(3)
Explanatory Statement to the Income Tax Assessment Amendment (Superannuation Measures No. 1) Regulation 2013
Reasons for decision
Summary
The payments from the fund will be regarded as having been made ‘as soon as it was practicable’ following the Deceased Member's death.
As subregulation 995-1.01(3) of the Income Tax Assessment Regulations 1997 (ITAR 1997) has been satisfied the payments made following the Deceased Member's death will be taken to be payments of superannuation income stream benefits.
Detailed reasoning
Income that a complying superannuation fund derives from assets set aside or used to pay superannuation income stream benefits to members, which would otherwise be assessable income, is deemed to be exempt income where the conditions in subdivision 295-F of the Income Tax Assessment Act 1997 (ITAA 1997) are satisfied for an income year. Such income is commonly referred to as exempt current pension income (ECPI).
The ITAA 1997 defines ‘superannuation income stream benefit’ with reference to the ITAR 1997. The meaning of superannuation income stream benefit is set out in regulation 995-1.01.
Subregulation 995-1.01(3) of the ITAR 1997 provides:
For the purposes of sections 295-385, 295-390, 295-395, 320-246 and 320-247 of the Act, if:
(a) a superannuation death benefit that is a superannuation lump sum is paid after the death of a person (the deceased ) using only an amount from a superannuation interest; and
(b) immediately before the deceased's death, the superannuation interest was supporting a superannuation income stream payable to the deceased; and
(c) the superannuation income stream did not automatically revert to another person on the death of the deceased;
the amount paid as the superannuation lump sum, to the extent it is not attributable to any amount (other than investment earnings) added to the superannuation interest on or after the deceased's death, is taken to be the amount of a payment from a superannuation income stream of a superannuation income stream benefit that was payable from the day of the deceased's death until as soon as it was practicable to pay the superannuation lump sum.
In other words, where a death benefit is paid using only an amount from the deceased’s superannuation interest that previously supported a superannuation income stream (and the interest was not reversionary) then the payment will be taken to be a payment of a superannuation income stream benefit. This is on the condition that no other amounts (apart from investment earnings) have been added to the superannuation interest following the member's death, as is the case here.
However, the payment will only be a superannuation income stream benefit for the period between the member’s death and ‘as soon as it was practicable to pay the superannuation lump sum.’
The Explanatory Statement to the Income Tax Assessment Amendment (Superannuation Measures No. 1) Regulation 2013 (the ES) gives an example which explains this. Example 3 of the ES states:
Arthur was a member of a complying superannuation fund who was receiving a superannuation income stream immediately before his death on 1 September 2012. The income stream did not automatically revert to another person on Arthur's death and no amounts (other than investment earnings) were added on or after his death to the superannuation interest that was supporting the income stream.
After undertaking a claims staking process, the trustee of the fund determined that the entire value of the deceased member's benefits in the fund would be paid to the deceased's widow as a lump sum. On 20 December 2012, which was in the circumstances as soon as practicable after Arthur's death, a single lump sum of $100,000 was paid to the widow using only an amount from the relevant superannuation interest.
For the purposes of the earnings tax exemption, the $100,000 will be taken to be the amount of a superannuation income stream benefit that was payable from 1 September 2012 until 20 December 2012.
The word ‘practicable’ is not defined in the ITAR 1997. The Australian Macquarie Dictionary defines ‘practicable’ as ‘capable of being put into practice, done, or effected, especially with the available means or with reason or prudence’.
The ES provides a number of examples of where, notwithstanding delay, the payment of a superannuation death benefit will be made ‘as soon as it was practicable’ after a member's death.
In this case, the fund is a single member self-managed superannuation fund. The Deceased Member passed away in 2014. Prior to the Deceased Member’s death, the fund was supporting a superannuation income stream payable to the Deceased Member. The superannuation income stream did not revert to another person on the death of the Deceased Member.
You provided the following reasons for the delay in making the payments to include:
● a number of complications in dealing with the Deceased Member’s will and estate;
● legal issues surrounding the legitimate appointment of replacement directors of the Trustee company;
● delays in the marketing and sale of the Fund’s principal assets; and
● complications with respect to determining how the superannuation death benefits were to be paid.
In conclusion, given the circumstances following the Deceased Member’s death, the payments in this case may be considered as having been made ‘as soon as it was practicable’.
In this case, subregulation 995-1.01(3) of the ITAR 1997 has been satisfied. Therefore, the payments made by the fund following the Deceased Member’s death will be taken to be superannuation income stream benefits for the purposes of claiming ECPI under subdivision 295-F of the ITAA 1997.
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