Edited Version of Private Advice

Authorisation Number: 1052407683383

Date of advice: 25 June 2025

Ruling

Subject:Superannuation member benefit or death benefit

Question:

Is the lump sum payment of$XX,XXX.XX from the late Member's account shortly before their death on XX XX 202X which was received as a lump sum after their death on XX XX 202X a superannuation member benefit under subsection 307-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer:

Yes.

This ruling applies for the following period

Year ending 30 June 20YY

The scheme commences on:

1 July 20YY

Relevant facts and circumstances:

1.  The Member was over 65 years old at the date of their death on XX XX 202X (Date of Death)

2.  The Member held one superannuation account with their superannuation fund.

Table 1: Superannuation details

3.  The Child (Administrator) held Power of Attorney for the Member.

4.  The Administrator is the Trustee for the Member's Estate.

5.  On XX October 20XX an application form was posted to the superannuation fund to withdraw all funds from the Member's account.

6.  The application form was downloaded from the superannuation fund's web site and submitted by post by power of attorney.

7.  It was assumed at the time (that while in ill health), the Member would live longer and the funds were withdrawn in order to invest elsewhere for better returns.

8.  Receipt of the withdrawal request was confirmed by the superannuation fund by email to the Member dated XX November 202X.This email confirmed that the withdrawal request was now being processed.

9.  The day after the superannuation fund confirmed the request was being processed, the Member passed away.

10.  $XX,XXX.XX was deposited into the Member's personal bank account four days after the death of the Member.

11.  The day after the funds were deposited, the superannuation fund issued a letter to the Member advising that the amount of $XX,XXX.XX had been deposited into the Member's nominated bank account and that the income stream was now closed.

12.  The letter confirmed that as the Member had reached age XX, they didn't have to pay tax on this payment or include the payment in their tax return.

13.  A superannuation fund Exit Statement was enclosed. It confirmed the exit date was XX November 202X, the net benefit payable was $XX,XXX.XX and $0 PAYG withheld.

14.  It appears that the superannuation fund was not aware that the Member had passed away.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Division 301

Income Tax Assessment Act 1997 Section 307-5

Income Tax Assessment Act 1997 Section 307-65

Income Tax Assessment Act 1997 Section 307-70

Income Tax Assessment Act 1997 Subsection 995-1(1)

Income Tax Assessment (1997 Act) Regulations 2021 Regulation 307-70.01

Income Tax Assessment (1997 Act) Regulations 2021 Regulation 307-70.02

Superannuation Industry (Supervision) Regulations 1994 Regulation 6.12

Superannuation Industry (Supervision) Regulations 1994 Regulation 6.20

Superannuation Industry (Supervision) Regulations 1994 Regulation 6.21

Superannuation Industry (Supervision) Regulations 1994 Schedule 1 to the Table in Part 1

Reasons for decision:

Release of benefits

Legislative framework - Conditions of release

1.  The Member was over 65 at the date of their death. This meant the member had already satisfied the condition of release in Schedule 1, item 106 of the table in Part 1 of the Superannuation Industry (Supervision) Regulations 1994 (SISR) by reaching the age of 65 years. This condition of release has 'nil' cashing restrictions. Under regulation 6.12 of the SISR, the member's benefits were all converted to unrestricted non-preserved benefits upon meeting a condition of release with 'nil' cashing restrictions. Under subregulation 6.20(1) of the SISR, a member's unrestricted non-preserved benefits in a regulated superannuation fund may be voluntarily cashed at any time. As per subregulations 6.20(2) and (3) of the SISR the whole or a part of the member's unrestricted non-preserved benefits may be cashed as one or more lump sums or one or more pensions.

2.  The Member's death on XX November 202X then resulted in them meeting the condition of release in Schedule 1, item 102 of the table in Part 1 of the SISR. This condition of release also has 'nil' cashing restrictions. Under subregulation 6.21(1) of the SISR, a member's benefits in a regulated superannuation fund must be cashed as soon as practicable after the member dies. Paragraph 6.21(2)(a) dictates that benefits must be cashed as single lump sums or as an interim and final lump sum for non-dependants; only dependants (for SISR purposes) may cash benefits in the form of a superannuation income stream in the retirement phase, as per paragraph 6.21(2)(b) and subregulations 6.21(2A) and (2B) of the SISR.

Legislative framework - superannuation lump sums and superannuation income streams

3.  Subsection 995-1(1) of the ITAA 1997 defines 'superannuation benefit' as having the meaning given by section 307-5.

4.  Section 307-5 of the ITAA 1997 states:

307-5(1) A superannuation benefit is a payment described in the table.

Table 2: Types of Superannuation benefits

(Table truncated)

307-5(2) A superannuation member benefit is a payment described in column 2 of the table.

307-5(4) A superannuation death benefit is a payment described in column 3 of the table.

5.  Section 307-70 of the ITAA 1997 defines 'superannuation income stream benefit' and 'superannuation income stream':

307-70(1) A superannuation income stream benefit is a superannuation benefit specified in the regulations that is paid from a superannuation income stream.

307-70(2) A superannuation income stream has the meaning given by the regulations.

6.  The reg 307.70.01 of Income Tax Assessment (1997 Act) Regulations 2021 (ITAR 2021) provides that all superannuation benefits are specified for the purposes of subsection 307-70(1). Reg 307.70.02 of ITAR provides the definition of 'superannuation income stream' for the purposes of subsection 307-70(2).

7.  If a superannuation benefit does not satisfy the ITAR 2021's definitions of a superannuation income stream benefit, subsection 307-65(1) of the ITAA 1997 states:

A superannuation lump sum is a superannuation benefit that is not a superannuation income stream benefit (see section 307-70).

Application - Taxation of benefits

8.  The benefit of $XX,XXX.XX paid from the Member's account as requested shortly before their death on XX XX 202X but received in their bank account after their death on XX XX 202X, is a superannuation lump sum. This is a straightforward application of subsection 307-65(1) ITAA 1997.

Type of superannuation benefit - superannuation member benefit or superannuation death benefit

Legislative framework

9.  The distinction between a superannuation member benefit and a superannuation death benefit is important because the tax treatment of the superannuation benefit varies according to its classification (as well as the age of the recipient and the components of the benefit).

10.  The tax treatment of superannuation member benefits is set out in Division 301 of the ITAA 1997. Broadly, section 301-10 states that if a member is 60 years or over when they receive a superannuation benefit, the benefit is non-assessable and non-exempt income. This applies whether the benefit is a superannuation lump sum or a superannuation income stream benefit. (The exception is if the taxable component of the benefit has an element untaxed in the fund: the untaxed element is assessable income and either section 301-95 or 301-100 will apply depending on whether the benefit is a lump sum or an income stream benefit.)

11.  The tax treatment of superannuation death benefits is set out in Division 302 of the ITAA 1997. Subdivision 302-B applies where the recipient is a death benefits dependant of the deceased, and Subdivision 302-C applies where the recipient is not a death benefits dependant of the deceased.

Death benefit or member benefit

12.  An amount that a member requested to be paid from their superannuation fund before their death, but was paid after their death, may be classified as a member benefit instead of a death benefit depending on the facts and circumstances of the payment.

13.  A trustee of a regulated superannuation fund can only pay superannuation benefits according to the fund's governing rules, including the fund's trust deed and relevant legislation. These governing rules set out when benefits can be paid and who they can be paid to, including after a member's death. A superannuation fund's governing rules must be read carefully to determine a member's benefit entitlements in the event of death.

14.  The trustee of the superannuation fund must assess whether the amount that the member requested to be paid is a member benefit or a death benefit based on the facts known at the time of the payment, including:

a.    the terms of the member's request;

b.    the terms of the trust deed and any other governing rules;

c.    the fund trustee's knowledge at the time that the payment is made (including whether they are aware that the member has died);

d.    the entity that the payment is being paid to;

e.    the circumstances and timing of the payment; and

f.    whether the payment is made because of and consistent with the member's request.

Lump sum benefit

15.  At the time the Member submitted the payment request, the Member had already satisfied a 'nil' condition of release (attaining the age of 65 years) and their superannuation benefits had been converted to unrestricted non-preserved benefits. They were thus entitled to:

a.    voluntarily cash their benefits at any time (consistent with subregulation 6.20(1) of the SISR);

b.    cash the whole or a part of their benefits (consistent with subregulation 6.20(2) of the SISR); and

c.    cash the benefits as one or more lump sums (paragraph 6.20(3)(a) of the SISR) or one or more pensions (paragraph 6.20(3)(b) of the SISR).

16.  The SISR also permitted the release of superannuation benefits when the Member met the 'nil' condition of release of death. Subregulation 6.21(1) of the SISR states that a member's benefits in a regulated superannuation fund must be cashed as soon as practicable after the member dies.

17.  Considering the facts, at the time of the payment of the lump sum benefit:

a.    We assume that the benefits were paid in accordance with the superannuation fund's trust deed and other governing rules.

b.    The lump sum benefits were paid to the Member's personal bank account in accordance with a valid request made by the Administrator by power of attorney and on the Member's behalf, before prior to the member's death.

c.    The superannuation fund was not aware of the Member's death before it paid the lump sum benefits.

d.    The lump sum was paid into the Member's personal bank account and as the Trustee was unaware of the Member's death and payment of the lump sum was paid four days after the event, it can be said that the Trustee made the payment with the expectation that the member would be alive to receive it.

18.  Accordingly, it is reasonable to treat the total superannuation lump sum benefit of $XX,XXX.XX as a superannuation member benefit. The tax treatment in Division 301of the ITAA 1997 should apply to the benefit.

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