Edited version of private advice

Authorisation Number: 7915169902780

Date of advice: 10 June 2025

Ruling

Subject:Death benefit or member benefit

Question:

There was a withdrawal of $xx from the Late 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.

This ruling applies for the following periods

Year ended 30 June xx

Year ended 30 June xx

The scheme commences on:

The scheme commences on 1 July 2023

Relevant facts and circumstances:

We've made this private ruling based on the facts and circumstances set out below. If your facts and circumstances differ from those set out below, this private ruling has no effect, and you can't rely on it. The fact sheet has more information about relying on your private ruling.

•         xx (the Member) died on xx.

•         The Member was xx years old at the date of their death (xx).

•         The Member held one pension phase superannuation account, with the Trustee for xx (The Fund) at the time of his passing.

•         The Fund is an APRA Regulated Public Offer Fund.

•         The Member had no death benefits dependants for the purposes of the ITAA 1997.

•         On xx the Member signed "Withdrawal Payment or Rollover Request Form".

•         In the "Withdrawal Payment or Rollover Request Form" the Member asked for a full lump sum payment (account closure) and provided the Fund with the Legal Representative's contact details.

•         On xx the Fund sent an email to the Legal Representative advising that instructions to process the withdrawal to the Member's pension payment bank account were received and "passed on".

•         On xx a letter was sent to the member confirming that the withdrawal the Member requested had been processed following the Member's instructions.

•         An Exit Statement for period xx to xx shows the withdrawal of $xx occurred on xx.

•         The Legal Representative received an email from the Fund on xx confirming the following:

i)          The pension payment in the amount of $xx was made to the Member on xx.

ii)         The full benefit in the amount of $xx was paid to the Member on xx.

•         Member's bank statement showing the following details:

i)          The pension payment in the amount of $xx was received on xx.

ii)         The full Member benefit in the amount of $xx was received on xx.

•         ATO records show that the Fund submitted a member account form on xx which shows that the Member's account was closed on xx.

•         On xx, the Legal Representative emailed the Superannuation Exit Statement provided by the Fund.

•         Exit Statement is dated xx, date of the withdrawal is: xx

•         On xx and xx, the Commissioner requested from the Legal Representative the evidence of the Fund's trustee knowledge of the death of the Member at the time the payment was made.

•         On xx the Legal Representative sent an email to xx bank (the Bank) to request details of the two payments made on xx ($xx and $xx).

•         On xx the xx Bank sent a letter to the Legal Representative stating they had investigated the enquiry and found that the funds were both received by the Bank on xx ($xx and $xx).

•         On xx the Fund sent an email to the Legal Representative stating that the "Fund was never aware that the member was deceased which means the payment would have always been a withdrawal. This is confirmed from the trustee." The email states that the trustee at the time was still investigating the dates. This is evidence that the trustee of the Fund was not aware that the Member had died when the payment was made.

The Product Disclosure Statement and Additional Information Guide both dated 1 December 2023 were provided, but these did not include the trust deed nor governing rules of the Fund. Relevant legislative provisions:

Division 301 of the Income Tax Assessment Act 1997

Division 302 of the Income Tax Assessment Act 1997

Section 307-5 of the Income Tax Assessment Act 1997

Section 307-65 of the Income Tax Assessment Act 1997

Section 307-70 of the Income Tax Assessment Act 1997

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

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

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

Regulation 1.06 of the Superannuation Industry (Supervision) Regulations 1994

Regulation 6.12 of the Superannuation Industry (Supervision) Regulations 1994

Regulation 6.20 of the Superannuation Industry (Supervision) Regulations 1994

Regulation 6.21 of the Superannuation Industry (Supervision) Regulations 1994

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

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: There was a withdrawal of$xx from the Late 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)?

Summary: Yes.

Detailed reasoning

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 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 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 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 document.

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 in their bank accountafter 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.

12.  As the Member did not have any death benefits dependants this reasons for decision document will not discuss Subdivision 302-B further.

13.  Regarding a superannuation lump sum that a person receives because of the death of another person of whom they are not a death benefits dependant:

a.    section 302-140 states that the tax-free component is non-assessable and non-exempt income;

b.    subsection 302-145(1) states that the taxable component is assessable income. However, subsection 302-145(2) entitles the recipient to a tax offset to ensure the rate of tax on the element taxed in the fund does not exceed 15%, and subsection 302-145(3) entitles the recipient to a tax offset to ensure the rate of tax on the element untaxed in the fund does not exceed 30%.

Death benefit or member benefit

14.  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.

15.  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.

16.  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

17.  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).

18.  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.

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

a.    We assume that the benefit was paid in accordance with the superannuation Fund's Trust Deed and Governing Rules.

b.    The lump sum benefit was paid to the Member's personal bank account in accordance with a valid request made by the Member prior to their death.

c.     No evidence was provided to explain the 14 day delay of the lump sum payment date which is shown in documents submitted from the Fund as xx and the actual payment date shown on the Member's bank statement as xx.

d.    The Fund's trustee was not aware of the Member's death at the time of payment, confirmed by email on xx.

e.    The date the Fund reported to the ATO that the account was closed (xx) matches the date the amount was received in the Member's bank account, thus we conclude that this was the date the benefit was paid and the account closed.

f.      The Fund confirmed by email on xx that the Member had taken the account balance and exited the Fund on xx. If the payment and closure of the account had begun on this date, it may have been difficult for the Fund to have changed the payment if they had received information about the Member's death.

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

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