Edited version of private advice

Authorisation Number: 1051907697491

Date of advice: 25 October 2021

Ruling

Subject: Superannuation death benefit

Question

Is the superannuation death benefit paid to the executor of the deceased estate determined by the operation of section 302-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following period:

Income year ending 30 June 20XX.

The scheme commences on:

1 July 20XX.

Relevant facts and circumstances

The trustee is the court appointed executor of the Deceased.

The Deceased was diagnosed with XXXX and had to cease employment and attend an XXXX for treatment.

The Deceased was in and out of hospital and in receipt of disability support payments.

The Deceased added their X children as binding beneficiaries nominated on his super fund account.

A will was executed naming the children of the Deceased as the primary beneficiaries and the trustee as the executor of the estate.

Separate bank accounts were established in the children's names with you named as the trustee of the accounts.

Instructions in the will were that any super fund transfers are to be made to the children's trust accounts and held in trust until the age of 18.

The trustee lodged a death benefit claim with the super fund.

A Letter of Probate was granted by the Supreme Court of relevant state naming the trustee as the Executor of the Will and Trustee.

The super fund issued a letter to the trustee advising you to open a bank account in the name of the deceased estate for the death benefit to be paid into.

The death benefit payment was then made to 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 sub-section 302-145

Income Tax Assessment Act 1997 sub-section 302-195(1)

Income Tax Assessment Act 1997 section 307-5

Income Tax Assessment Act 1997 section 307-70

Income Tax Assessment Act 1997 sub-section 995-1(1)

Reasons for decision

Meaning of death benefits dependant

Division 302 of the ITAA 1997 sets out the taxation arrangements that apply to the payment of superannuation death benefits. These arrangements depend on whether the person that receives the superannuation death benefit is a dependant of the deceased and whether the amount is paid as a lump sum superannuation death benefit or a superannuation income stream death benefit.

Section 302-10 of the ITAA 1997 states:

(1) 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.

(2) 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 benefit 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.

(3) To the extent that 1 or more beneficiaries of the estate who were not * death benefits dependants of the deceased have benefited, or may be expected to benefit, from the * superannuation death benefit:

(a) the benefit is treated as if it had been paid to you as a person who was not a death benefits dependant of the deceased; and

(b) the benefit is taken to be income to which no beneficiary is presently entitled.

To determine how the superannuation death benefit payment to the trustee of the deceased estate should be treated, it must be established whether the beneficiaries are death benefits dependants or non-dependants of the deceased.

A superannuation death benefit is defined in section 307-5 of the ITAA 1997 as:

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

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, as defined in section 307-70 of the ITAA 1997.

The taxable component of a superannuation death benefit paid as a lump sum to a non-dependant beneficiary is assessable income and is taxed under section 302-145 of the ITAA 1997.

Where a person who was a dependant of the deceased receives a superannuation death benefit paid as a lump sum, the death benefit is not assessable income and is not exempt income, under section 302-60 of the ITAA 1997.

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. Subsection 302-195(1) of the ITAA 1997 defines a death benefits dependant as follows:

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.

As the Beneficiaries of the Deceased are their children aged less than 18, paragraph 302-195(1)(b) applies.

Therefore, the superannuation lump sum death benefit paid to the Deceased's estate is considered to be tax free.

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