Edited version of private ruling

Authorisation Number: 1011713271965

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Ruling

Subject: Death benefit dependency

Question

Is any part of the superannuation death benefit included as assessable income where it has been paid to the executor of the Estate, trustee of the Protective Trust and trustee of the Special Disability Trust?

Advice/Answers

No.

This ruling applies for the following period

Year ending 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

The Deceased was over 65 years of age.

The Deceased passed away and probate was granted in the 2009-10 income year.

A trustee has been appointed as an executor and trustee of the Deceased's estate.

Administration of the Deceased's estate has not been completed.

The Deceased's estate has not yet received payment of any superannuation death benefits. An amount from the Family Superannuation Fund is due to the Deceased's estate.

According to the Deceased's Will the trustees are required to pay the proceeds of any superannuation fund, allocated pension fund or approved deposit fund held by the Deceased at the time of death into a Protective Trust (the Protective Trust), an all needs protective trust, for the sole benefit of the Beneficiary until the Beneficiary's death.

The trustee of the Protective Trust is to apply the net income or allocated income or capital of the Protective Trust for the benefit of the Beneficiary to ensure that she has appropriate housing and accommodation and ample financial support and assistance to improve the quality of their life.

The Deceased's Will states that on the death of the Beneficiary, the balance of the Protective Trust is to be distributed in accordance with the balance of the remainder of the Deceased's estate.

Under the Deceased's Will the trustees may also distribute any net income, allocated net income or capital of the Protective Trust to the trustee of a Special Disability Trust (the Special Disability Trust) at their absolute discretion.

The terms of the Special Disability Trust are set out in a separate deed. On the death of the Beneficiary, any residue remaining in the Special Disability Trust is to be repaid to the donors of the trust. The Donors are the trustees of the Protective Trust.

The remaining beneficiaries of the Deceased's estate are the deceased's other adult children who are not death benefits dependants of the Deceased.

The Beneficiary is almost 50 years of age.

The Beneficiary had a close personal relationship with the Deceased but was unable to live with the Deceased due to their intellectual and physical disability.

The Beneficiary resided with beneficiary's father. The Beneficiary now lives there permanently due to the Beneficiary's right to occupy the residence under the late father's Will.

The Beneficiary was receiving a Centrelink disability pension at the time of the Deceased's death.

At the time of the Deceased's death the Beneficiary had monies in bank deposits.

The Deceased received no financial support from the Beneficiary prior to or at the time of death.

The Deceased provided substantial support to the Beneficiary while they resided with the Beneficiary. The Beneficiary provided no support to the Deceased due to their medical condition.

The Beneficiary now has a carer for 7-8 hours per day.

In a Notice of Private Ruling issued in the 2010-11 income year the Commissioner ruled that the Deceased was in an interdependency relationship with the Beneficiary in accordance with section 302-200 of the Income Tax Assessment Act 1997 (ITAA 1997).

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 302-10

Income Tax Assessment Act 1997 Subsection 302-10(2)

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

Income Tax Assessment Act 1997 Section 302-60

Income Tax Assessment Act 1997 Section 302-195

Income Tax Assessment Act 1997 Section 302-200

Reasons for decision

Summary of decision

The superannuation death benefit will eventually be paid to a death benefits dependant of the deceased. Therefore, the superannuation death benefit will be subject to tax as if it were paid to the death benefits dependant and is income of the deceased estate to which no beneficiary is presently entitled. As a result, the lump sum superannuation death benefit is not assessable income and is not exempt income when received by the trustee.

Detailed explanation

Under section 302-10 of the ITAA 1997, the taxation arrangements for superannuation death benefits paid to a trustee of a deceased estate are determined in accordance with the taxation arrangements that would otherwise apply to the person or persons otherwise intended to benefit from the estate.

This means that where a death benefits dependant of the deceased is expected to receive part or all of a superannuation death benefit, it will be subject to tax as if it were paid to a death benefits dependant of the deceased.

Where a person, who is not a death benefits dependant, is expected to receive part or all of a superannuation death benefit, it will be subject to tax as if it were paid to a non-dependant of the deceased.

The superannuation death benefit will be treated concessionally if dependants of the deceased will benefit from the estate. Under section 302-60 of the ITAA 1997 where a person receives a superannuation death benefit and that person was a dependant of the deceased, it is not assessable income and is not exempt income.

In the present case, the Commissioner has established that the Deceased and the Beneficiary were in an interdependency relationship which means the Beneficiary is a death benefits dependant of the Deceased in terms of section 302-195 of the ITAA 1997.

According to the Deceased's Will the trustees are required to pay the proceeds of any superannuation fund, allocated pension fund or approved deposit fund held by the Deceased at the time of death into an all needs protective trust (the Protective Trust), for the sole benefit of the Beneficiary until the Beneficiary's death.

The trustee of the Protective Trust is to apply the net income or allocated income or capital of the Protective Trust for the benefit of the Beneficiary to ensure that appropriate housing, accommodation and ample financial support and assistance is provided to improve the quality of the Beneficiary's life.

The Deceased's Will states that on the death of the Beneficiary, the balance of the Protective Trust is to be distributed in accordance with the balance of the remainder of the Deceased's estate.

Under the Deceased's Will the trustees may also distribute any net income, allocated net income or capital of the Protective Trust to the trustee of a Special Disability Trust (the Special Disability Trust) at their absolute discretion.

The terms of the Special Disability Trust are set out in a separate deed. On the death of the Beneficiary, any residue remaining in the Special Disability Trust is to be repaid to the donors of the trust. The Donors are the trustees of the Protective Trust.

The remaining beneficiaries of the Deceased's estate are the deceased's other adult children who are non-death benefits dependants of the Deceased.

Based on the facts of this case, the Commissioner considers the payment represents a payment for the benefit of a dependant of the Deceased as:

· the Productive Trust into which the payment will be made is for the sole benefit of the Beneficiary;

· the payment of monies to non-dependant beneficiaries represents a remote possibility as it relies upon the Beneficiary's death;

· payments may also be made to the Special Disability Trust for the Beneficiary; and

· payment of residues from the Special Disability Trust are only made on the death of the Beneficiary.

Accordingly, the superannuation death benefit will be paid to a death benefits dependant of the deceased as defined under subsection 302-195 of the ITAA 1997.

Therefore, the superannuation death benefit will be subject to tax as if it were paid to the death benefits dependant and is income of the deceased estate to which no beneficiary is presently entitled. As a result, the lump sum superannuation death benefit is not assessable income and is not exempt income in the hands of the executor of the Estate, trustee of the Protective Trust and trustee of the Special Disability Trust.