Edited version of Private Advice

Authorisation Number: 5010111770222

Date of advice: 3 July 2025

Ruling

Subject: Superannuation death benefit

Question:

There was a withdrawal of $xx from the xx (the Member) account shortly before their death on xx which was received as a lump sum after their death on xx. Was this withdrawal a superannuation member benefit under subsection 307-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer:

Yes, the payment from the Member's account is a superannuation death benefit under subsection 307-5(4) of the ITAA 1997.

This ruling applies for the following period

Year ended xx

The scheme commences on:

The scheme commences on xx

Relevant facts and circumstances:

Xx ("the Beneficiary") was the spouse of xx (the Deceased person) as indicated on the Letters of Administration of xx dated xx and confirmed on ATO systems.

The Member died on xx, as indicated on the death certificate of the Deceased, dated xx.

The Member was born on xx, and was aged xx years when they passed away.

The Member completed a request for a Total and Permanent Disablement superannuation lump sum payment on xx through xx.

The Member received the superannuation payment from the xx on xx, received by xx.

You applied for a private ruling on xx.

In support of your application, you made the following statements:

•                     The Member received a superannuation lump sum payment by cheque care of xx on xx.

•                     The Member passed away on xx.

•                     As the Member had passed away, they never received the funds.

•                     The super fund treated the payment as a payout, but you believe it should be classified as a death benefit.

•                     The xx tax return has been lodged by the Beneficiary, with the lump sum lodged at question 8.

You provided the following documentation in support of your application:

•                     The Member's Death Certificate, dated xx.

•                     The Probate/Letters of Administration, dated xx, stating the Beneficiary as the spouse of the deceased.

•                     A letter from xx (formerly xx) dated xx stating that the Beneficiary receive 100% of the total benefit of $xx.

•                     A letter from xx dated xx with cheque stating:

i)        Account Balance: $xx.

ii)        Group Life Insurance $xx.

iii)        Less PAYG Tax $xx.

iv)        Net Benefit Paid $xx.

v)        Cheque for $xx dated xx.

•                     A PAYG payment summary - superannuation lump sum, year ending xx, dated xx, from xx.

i)        Total Tax Withheld $xx.

ii)       Taxed element $xx.

iii)        Untaxed element $xx.

iv)        Tax free component $xx.

v)        Death benefit xx.

•                     A PAYG Payment Summary - Individual Non Business payment summary for year ending xx.

i)        Total Tax Withheld $xx.

ii)        Gross $xx

A pre-fill report for the xx income year for the xx, dated xx.

A letter from xx dated xx advising of a payment for period xx to xx.

•                     Gross Amount $xx.

•                     Less Other Income: $xx.

•                     Less Tax Withheld $xx.

•                     Net Amount $xx.

•                     Super Amount $xx.

A letter from xx dated xx advising of a payment for period xx to xx.

•                     Gross Amount $xx.

•                     Less Other Income: $xx.

•                     Less Tax Withheld $xx.

•                     Net Amount $xx.

•                     Super Amount $0.

A Trust Statement from xx dated xx.

A paid xx Tax Invoice, dated xx for Professional Costs.

A paid xx Tax Invoice, dated xx for Professional Costs.

An xx letter, dated xx stating the Total and Permanent Disablement Benefit (TPD) details as follows:

Entitled to receive payment of account balance of $xx and TPD Insurance Benefit of $xx as at xx. The balance of $xx is comprised of:

•                     Preserved $xx.

•                     Restricted $xx.

•                     Unrestricted $xx.

•                     Taxed $xx.

•                     Untaxed $xx.

•                     Tax Free $xx.

The xx Individual Tax Return for the Member.

A Member Statement from xx for the period xx to xx, showing closing account balance of $xx as at xx.

A letter from xx dated xx, sent to xx stating an amount was sent via electronic funds transfer, following the death of the Member.

An email and attachment from xx, both dated xx. This contains the signed Application for payment of benefit, the certified copy of the Member's drivers' licence, the certified copy of the Member's Medicare Card.

An email and attachment from the Member to xx, both dated xx. This contains a signed copy of the Member's Retention of Life Insurance Cover after payment of TPD Benefit.

A letter from xx dated xx. Documents requiring signature are contained - Authority to Settle & Trust Transfer, Authority to Act and Receive, Our Memorandum of Fees, xx (previously xx) Payment Benefit Form.

•                     Account balance $xx.

•                     TPD Insured Amount $xx.

Superannuation Account Balance $xx.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Division 301

Income Tax Assessment Act 1997 Division 302

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 1.06

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:

These reasons for decision accompany the Notice of private ruling for xx.

This is to explain how we reached our decision. This is not part of the private ruling.

Issue:

Question: 1

Summary: There was a withdrawal of$xx from the xx (the Member) account shortly before their death on xx which was received as a lump sum after their death on xx. Was this withdrawal a superannuation member benefit under subsection 307-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Detailed reasoning

Release of benefits

Legislative framework - Conditions of release

1.  The Member was xx at the date of their death. This meant the member had already satisfied the condition of release in Schedule 1, item 102A of the table in Part 1 of the Superannuation Industry (Supervision) Regulations 1994 (SISR) due to a terminal medical condition. 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 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 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 1: Superannuation benefit types

(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 Income Tax Assessment (1997 Act) Regulations 2021 (ITAR 2021) provides that all superannuation benefits are specified for the purposes of subsection 307-70(1) and also provides the definition of 'superannuation income stream' for the purposes of subsection 307-70(2), neither of which are discussed further in this reasons for decision.

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 paid from the Member's account as requested shortly before their death on xx but received by chequeafter their death on xx, 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 (Total and Permament Disablement) 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.            The Trust deed and governing rules states that a Member is entitled to the Member's Account Balance on Total and Permanent Disablement, upon a Member's application. The Trustee may pay that Account Balance in such instalments and on such other conditions as it determines. On the death of a Member, a death benefit equal to the Member's Account Balance is payable so long as the requirements in the Trust Deed are met.

b.            The terms of the request were for the Member to be paid a lump sum portion of their total account balance as a Total and Permanent Disablement Benefit.

c.            Member had requested the payment on xx shortly prior to death for settlement for Total and Permanent Disablement. The payment itself was received after date of death.

d.            A cheque for the payment of the super benefit of $xx gross was made out to the Member but addressed to xx on xx who received the amount into their holding account on xx. xx received the payment letter and cheque directly from xx, took their fees from the amount and then paid the remainder ($xx) to the Member on xx. The payment was received and processed after the Member's death.

e.            The payment was made consistent with the Member's request.

18.  Accordingly, it is reasonable to treat the total superannuation lump sum benefit of $xx as a superannuation death benefit. The tax treatment in Division 302 of the ITAA 1997 should apply to the benefit.

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