Edited version of private ruling

Authorisation Number: 1011696235992

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Ruling

Subject: a death benefit

Question 1

Will any part of the superannuation lump sum death benefit paid to the Trustee for Taxpayer A's Estate from a superannuation fund be taxable under section 302-145 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Will any part of the superannuation lump sum death benefit paid to the Trustee for Taxpayer B's Estate from the Trustee for Taxpayer A's Estate be taxable under section 302-145 of the ITAA 1997?

Answer

No.

This ruling applies for the following period:

2009-10 income year

The scheme commences on:

1 July 2009

Relevant facts and circumstances

Taxpayer A was the recipient of an Allocated Pension from a superannuation fund (the Fund).

Taxpayer A is over 60 years of age.

Taxpayer A passed away during the income year.

The Late Taxpayer A had left instructions that the balance of their superannuation be paid to their dependent spouse, Taxpayer B.

A Clause of the Late Taxpayer A's will made more than 20 years ago said that if their partner, Taxpayer B, should survive him for twenty eight days they gives, devises and bequeaths all their property both real and personal wheresoever and whatsoever including their property over which they may have any power or powers of appointment or disposition unto their trustee upon trust for their partner absolutely.

The Personal Plan Information from the Fund for the Late Taxpayer A stated that their pension commenced more than 5 years ago and their spouse, Taxpayer B is the reversionary beneficiary.

Taxpayer B was over 60 years of age.

Taxpayer B passed away during the income year.

An e-mail from a financial planner to the Trustee for Taxpayer A's tax agent during the income year outlined the sequence of events that occurred pending the payment of the funds. The relevant part of the e-mail said that during the income year, the Fund sent a standard letter thanking them for notification of Taxpayer A's death and advising the documentation that they required to revert Taxpayer A's pension to Taxpayer B. In the letter, under the heading beneficiary details, Taxpayer B as spouse was named as the reversionary beneficiary. The e-mail also said that during the income year, the Fund sent a second standard letter thanking them for notification of Taxpayer A's death and advising the documentation that they required. Under the heading beneficiary details it said that there is no beneficiary nominated on the account. Without binding nomination the benefit is generally paid to the estate. As the trustee, the Fund will assess all of the relevant information and pay the benefit according to the terms of the trust deed and relevant legislation.

The probate for the Estate of the Late Taxpayer A was granted during the income year.

A PAYG Payment Summary - superannuation lump sum dated in the income year from the Fund stated an amount was paid to the Trustee of the Estate of the Late Taxpayer A during the income year. The payment comprised a taxable component and a tax free component.

An amount was received in the Estate of the Late Taxpayer A during the income year. The payment comprised a taxable component and a tax free component.

The Estate of the Late Taxpayer A transferred an amount into the Estate of the Late Taxpayer B. The amount included the amount paid by the Fund to the Estate of the Late Taxpayer A.

The two beneficiaries of the Estate of the Late Taxpayer B are children of the two deceased taxpayers. Neither of the children were dependants of either the Late Taxpayer A or the Late Taxpayer B.

Relevant legislative provisions

section 307-65 of the Income Tax Assessment Act 1997

subsection 307-5(1) of the Income Tax Assessment Act 1997

section 307-70 of the Income Tax Assessment Act 1997

subsection 307-5(4) of the Income Tax Assessment Act 1997

section 302-10 of the Income Tax Assessment Act 1997

Subsection 101A(3) of the Income Tax Assessment Act 1936

Section 302-145 of the Income Tax Assessment Act 1997

Subsection 302-10(3) Income Tax Assessment Act 1997

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

Subsection 302-195(1) of the Income Tax Assessment Act 1997

Reasons for decision

Summary

The taxable component of the superannuation lump sum death benefit paid to the Trustee for Taxpayer A's Estate is assessable income of the Trustee in the income year under subsection 101A(3) of the Income Tax Assessment Act 1936 (ITAA 1936) and section 302-10(3) of the Income Tax Assessment Act 1997 (ITAA 1997).

The Trustee for Taxpayer A's Estate is entitled to a tax offset on the element taxed in the fund under subsection 302-145(2) of the ITAA 1997.

The benefit transferred from the Trustee for Taxpayer A's Estate to the Trustee for Taxpayer B's Estate is not assessable to the Trustee for Taxpayer B's Estate. The assessable amount of that benefit will be assessed to the Trustee for Taxpayer A's Estate under subsection 101A(3) of the ITAA 1936 and section 302-10(3) of the ITAA 1997.

Detailed reasoning

From 1 July 2007 a lump sum payment made to a person from a superannuation fund is now referred to as a superannuation lump sum. 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 table contained in subsection 307-5(1) of the ITAA 1997 lists various types of superannuation benefits. One type of superannuation benefit is a superannuation death benefit. A superannuation death benefit is described in Column 3 of the table in subsection 307-5(1) of the ITAA 1997 as including:

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

A superannuation death benefit must be paid as either:

· a superannuation lump sum; or

· a superannuation income stream.

In this case, Taxpayer A was a member of the Fund. As a result of Taxpayer A's death, a superannuation lump sum death benefit was paid by the Fund to the Trustee for Taxpayer A's Estate.

The superannuation death benefit was paid by the Fund after Taxpayer A's death, because they were a fund member. Therefore the benefit is a superannuation death benefit within the meaning of subsection 307-5(1) of the ITAA 1997.

In A clause of the Late Taxpayer A's will dated more than 20 years ago, the Late Taxpayer A bequeathed all their property both real and personal to their spouse Taxpayer B if she survived him for twenty eight days. It is also noted that they had named Taxpayer B as the reversionary beneficiary.

The probate of the will of the Late Taxpayer A was granted during the income year. The Late Taxpayer B passed away during the income year, prior to the probate of the will of the Late Taxpayer A.

An e-mail from a financial planner to the Trustee for Taxpayer A's tax agent during the income year outlined the sequence of events that occurred pending the payment of the benefit from the Fund. In the e-mail it was noted that Taxpayer B is named as the reversionary beneficiary. However no documents had been processed by the Fund prior to Taxpayer B's death. It is also noted in the same e-mail that after Taxpayer B's death, in the required documentation for the payment, under the heading beneficiary details it said that there is no beneficiary nominated on the account. Without binding nomination the benefit is generally paid to the estate. As the trustee, the Fund will assess all of the relevant information and pay the benefit according to the terms of the trust deed and relevant legislation.

The Fund paid a superannuation lump sum death benefit to the Estate of the Late Taxpayer A during the income year. An amount was received in the Estate of the Late Taxpayer A from the Fund during the income year. The payment comprised a taxable component and a tax free component.

From the facts of the case, the Late Taxpayer B did not receive a payment from the Fund. The Fund paid the benefit to the Trustee for Taxpayer A's Estate. Taxpayer A's Estate then transferred the monies paid by the Fund to Taxpayer B's Estate. These monies will be ultimately distributed to two beneficiaries who are non-dependants of the deceased. However, as the superannuation lump sum death benefit was originally paid to the Trustee for Taxpayer A's Estate, the Trustee of that estate is assessed on that amount.

The payments are superannuation benefits within the meaning of Column 3 of Item 1 of the table in subsection 307-5(1) of the ITAA 1997. These benefits are superannuation death benefits as defined in subsection 307-5(4) of the ITAA 1997.

The superannuation benefits are superannuation lump sums within the meaning of section 307-65 of the ITAA 1997. As the payment was made by a superannuation fund after 1 July 2007, the provisions of section 302 of the ITAA 1997 apply to the benefit.

Application of section 302-10 of the ITAA 1997

Section 302-10 of the ITAA 1997 deals with superannuation death benefits paid to the Trustee of the Deceased Estate. Subsection 302-10(1) of the ITAA 1997 states:

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.

As the payment is a superannuation lump sum death benefit received from the superannuation fund by the Trustee of the Estate, Division 302-10 of the ITAA 1997 will apply to the Trustee of the Estate.

Application of subsection 302-10(3) of the ITAA 1997

Under subsection 302-10(3) of the ITAA 1997 where a non-dependant of the deceased receives or is to receive part or all of a superannuation death benefit, the trustee will be subject to tax on that part of the benefit paid or to be paid to the non-dependant as if it were paid to a non-dependant of the deceased.

Subsection 302-10(3) of the ITAA 1997 states:

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.

Subsection 995-1(1) of the ITAA 1997 states that the term 'death benefits dependant' has the meaning given by section 302-195.

Subsection 302-195(1) of the ITAA 1997 defines the meaning of death benefits dependant and states:

(1) 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 or she died; or

(d) any other person who was a dependant of the deceased person just before or she died.

From the facts of the case, the benefit was paid to the Trustee for Taxpayer A's Estate. The Trustee for Taxpayer A's Estate then paid the benefit to the Trustee Taxpayer B's Estate. The Trustee for Taxpayer B's Estate is not a death benefits dependant as defined under subsection 302-195(1) of the ITAA 1997. It is noted that the benefit will be distributed by the Trustee for Taxpayer B's Estate to the two children of the deceased who are ultimately the two beneficiaries who are expected to benefit from the superannuation death benefit. You have advised that the two beneficiaries are non-dependants of the deceased. Therefore the two beneficiaries would not be death benefits dependants under subsection 302-195(1) of the ITAA 1997.

Application of subsection 101A(3) of the ITAA 1936

Subsection 101A(3) of the ITAA 1936 states:

To avoid doubt, if in the year of income an amount is included in the assessable income of a deceased taxpayer under Division 82 or 302 of the Income Tax Assessment Act 1997 in respect of a payment received by the trustee of the estate of the deceased taxpayer, that amount shall be included in the assessable income of that year of income of the trust estate.

Subsection 101A(3) of the ITAA 1936 brings into the assessable income of the trust estate the amount of a superannuation death benefit received after the death of a taxpayer that is included in the assessable income of a deceased taxpayer under Division 302 of the ITAA 1997.

Taxation of superannuation lump sum death benefit

As the benefits will be distributed to non-dependants, section 302-145 of the ITAA 1997 will apply to the payment.

Section 302-145 of the ITAA 1997 states:

302-145(1) If you receive a superannuation lump sum because of the death of a person of whom you are not a death benefits dependant, the taxable component of the lump sum is assessable income.

302-145(2) You are entitled to a tax offset that ensures that the rate of income tax on the element taxed in the fund of the lump sum does not exceed 15%.

302-145(3) You are entitled to a tax offset that ensures that the rate of income tax on the element untaxed in the fund of the lump sum does not exceed 30%.

Under subsection 302-10(3) of the ITAA 1997 where a non-dependant of the deceased receives or is to receive part or all of a superannuation death benefit, the trustee will be subject to tax on that part of the benefit paid or to be paid to the non-dependant as if it were paid to a non-dependant of the deceased.

In this case the Trustee for Taxpayer A's Estate will be subject to tax on that part of the benefit paid or to be paid to the non-dependants.

The non-dependants are not presently entitled to the superannuation lump sum death benefit and the benefit will not form part of their assessable income.

Subsection 101A(3) of the ITAA 1936 will bring into the assessable income of the Trustee for Taxpayer A's Estate, the amount of the benefit that is included in the assessable income of the Trustee for Taxpayer A's Estate under section 302 of the ITAA 1997.

A PAYG Payment Summary - superannuation lump sum dated during the income year from the Fund stated an amount was paid to the Estate of the Late Taxpayer A during the income year. The payment comprised a taxable component and a tax free component.

The Trustee of Taxpayer A's Estate should include the taxable component in the assessable income of the Estate return for the income year. The Trustee for Taxpayer A's Estate is entitled to a tax offset on the element taxed in the fund under subsection 302-145(2) of the ITAA 1997.