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Edited version of private ruling
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Ruling
Subject: Taxation of Death Benefit ETP paid to non-dependant
Is the death benefit eligible termination payment (ETP) you have received from a superannuation fund included in your assessable income?
Yes.
This ruling applies for the following period:
Year ended 30 June 2010
Relevant facts
You received a payment of death benefit from the Super Fund. The payment was made in relation to the death superannuation benefits in regards to its member who died in 2009.
The member was your relative, and they left no Will.
The PAYG payment summary from the Super Fund included the following:
Taxable component
Taxed element
Untaxed element
Taxed Withheld.
The amount of tax was withheld from the death superannuation benefit which a flat rate of 15% for taxed element, and a flat rate tax of 30% for untaxed element, plus 1.5% Medicare levy.
The type of death benefit as stated on the payment summary was for a 'non-dependant'.
The cheque was issued in your name, as the Super Fund needed a name to issue the cheque to.
The payment of the death benefit from the Super Fund was used to pay for funeral costs, and distributed to others.
Relevant legislative provisions
Income Tax Assessment Act 1997 Part 2-40
Income Tax Assessment Act 1997 Part 3-30
Income Tax Assessment Act 1997 Subdivision 82-B
Income Tax Assessment Act 1997 Section 82-70
Income Tax Assessment Act 1997 Section 302-145
Reasons for decision
A 'death benefit ETP' is determined with reference to section Part 2-40 and Part 3-30 of the Income Tax Assessment Act 1997 (ITAA 1997), and includes an ETP that is paid on the death of a person to a dependent or the legal personal representative of the deceased person or to any other person (for example a non-dependent beneficiary).
The definition of 'eligible termination payment' includes a payment made directly from a deceased member's superannuation fund to a beneficiary. This is still the case even when the payment from the superannuation fund includes an amount relating to an insurance policy.
Subdivision 82-B of the ITAA 1997 determines the tax treatment of a death benefit ETP. The tax treatment depends on whether the payment is made to a dependant or non-dependant beneficiary.
The term dependant is taken to mean a spouse or a child of the deceased who is under 18 years of age or any person who was actually dependant upon the deceased taxpayer for financial maintenance and support. If the level of financial support is insignificant or minor, then the person cannot be regarded as a dependant. In this case, you have indicated that none of the beneficiaries was financially dependant upon the deceased person.
A death benefit ETP paid to a non-dependant beneficiary is taxed in a similar way to a normal ETP in the hands of the recipient and included as assessable income in the tax return of the recipient for the year of income in which the payment was made, in accordance with section 82-70 of the ITAA 1997.
A tax offset applies to the retained amount of the post-June 83 component in accordance with section 302-145 of the ITAA 1997 so that the effective maximum rate of tax on that component is 15% for the taxed element and 30% for the untaxed element.
A Medicare levy is also payable upon any superannuation benefit where a tax rate greater than zero per cent applies.
The Income Tax legislation does not provide for any discretion in the taxation of ETPs. There are no provisions of the Income Tax legislation upon which the Commissioner can rely to grant you an exemption from the application of the above laws, even given the nature of the payment and the circumstances in which it was received.
The Tax Office can only take into consideration how the payment was actually made when assessing whether an amount has been correctly assessed to a taxpayer.
In your case the Super Fund has paid the death benefit ETP to you directly and not to the deceased estate.
Therefore, as you are non-dependant of the deceased, the death benefit ETP being the post June 1983 taxed and untaxed elements will have to be included in your assessable income for the year ended 30 June 2010 and taxed as indicated above.