Edited version of private ruling

Authorisation Number: 1011741138466

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Ruling

Subject: Superannuation death benefit

Question

Is the superannuation death benefit paid to the deceased estate excluded from the assessable income of the estate to the extent to which dependant beneficiaries are likely to benefit from the payment?

Answer

Yes

Relevant facts and circumstances

The deceased is survived by his partner and their children.

The deceased was a member of a Superannuation Fund. At the time of death the deceased had a binding death nomination in respect of their member account in a superannuation fund with the partner and children being the nominated beneficiaries.

The deceased's will includes a discretionary testamentary trust which has wide ranging beneficiaries.

It is proposed that the superannuation death benefit be paid from the deceased's superannuation fund to the executor of the deceased's estate.

The proceeds of the superannuation death benefit (the proceeds) will then be paid as a lump sum into an investment account and held in the name of a trustee for the children.

It is intended that the proceeds be quarantined in the investment account for the children outside of the testamentary trust.

The proceeds will be held in trust by the children's surviving parent as trustee for the benefit of the children.

The purpose of the investment account is to generate investment income to support the children's general upkeep and education.

Income and capital gains derived on the funds in the investment account would be shared equally by the children.

Reasons for decision

Under section 302-10 of the Income Tax Assessment Act 1997 (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 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 dependant of the deceased, and the benefit is taken to be income to which no beneficiary is presently entitled (subsection 302-10(2) of the ITAA 1997).

Where a person that is not a 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 to that extent, and the benefit is taken to be income to which no beneficiary is presently entitled (subsection 302-10(3) of the ITAA 1997).

The superannuation death benefit will be treated concessionally if dependants of the deceased will benefit from the estate. 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. It will now be determined if the beneficiary is a dependant of the deceased.

Section 302-195 of the ITAA 1997 defines death benefits dependant as follows:

A death benefits dependant, of a person who has died, is:

(a) the deceased persons spouse or former spouse; or

(b) the deceased persons 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 he or she died; or

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

In this case, the superannuation death benefit will be paid from the deceased's superannuation fund to the executor of the deceased's estate. The deceased's will includes a discretionary testamentary trust which has wide ranging beneficiaries. However, it is intended that the proceeds of the superannuation death benefit (the proceeds) will be paid into an investment account to be held in the name of a trustee for the children.

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

(a) the proceeds will be quarantined in the investment account for the children outside of the testamentary trust (which will presumably deal with the children's share of the other assets of the deceased estate);

(b) the proceeds will be held in trust by the children's mother as trustee for the benefit of the children;

(c) the purpose of the investment account is to generate investment income to support the children's general upkeep and education; and

(d) income and capital gains derived on the funds in the investment account would be shared equally by the children.

Accordingly, it is accepted that the superannuation death benefit is made for the ultimate benefit of the children who are all children of the deceased under the age of 18. Therefore, the beneficiaries are considered to be death benefits dependants of the deceased for the purposes of section 302-195 of the ITAA 1997.

As discussed above, the superannuation death benefit will be treated concessionally if dependants of the deceased will benefit from the estate. 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.