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Advice

Subject: concessional contributions

Question

Will the payment of a superannuation death benefit by the trustee of the superannuation fund (the Fund) to the trustee of the deceased estate (the Estate) constitute a contribution for the purposes of section 292-25 of the Income Tax Assessment Act 1997(ITAA 1997)?

Answer:

No

This ABA applies for the following periods:

Year ended 30 June 2012

The scheme commenced on:

1 July 2011

Relevant facts:

Entity 1 is the trustee for the Fund.

The Fund is a complying superannuation fund and a regulated superannuation fund within the meaning of the terms in the Superannuation Industry (Supervision) Act 1993 (SIS Act) and the ITAA 1997.

The Deceased was an accumulation member of the Fund.

In August 2004 the Fund commenced paying a defined benefit, complying, lifetime pension (the Pension) to the Deceased.

This pension was exclusively supported by the Deceased's account balance and not by an actuarial reserve or pool of pension assets or any other assets of the Fund. Actuarial assumptions were used to discern the starting amount of the Pension. In addition, this account balance was directly attributable to the benefits funded for and by the Deceased during his working life and no reserve has ever been created with respect to the Deceased's interest in the Fund.

The Pension continued to be paid until the member's death in September 2010.

The Deceased did not have any dependants and therefore the Pension was not reversionary.

As a result of the member's death, the remaining balance of the member's account is being held by the Fund trustee on account of the Deceased. This balance is still referable to the Pension.

The Fund trustee has determined this amount to be a 'surplus' within the meaning of a clause of the Terms of Participation document and proposes to pay that amount (with any subsequent referrable earnings) to the trustee of the deceased estate (the Estate).

The Fund trustee confirmed the proposed payment to the Estate will constitute a superannuation death benefit to the trustee of the Estate.

The Fund trustee has also advised there are no death benefit dependants (within the meaning of section 302-195 of the ITAA 1997) who are beneficiaries of the Estate.

The applicant has provided documentation including the rules of the Fund (Fund rules), the Terms of Participation document and the benefit specification for the lifetime pension (the Specs).

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 292-25
Income Tax Assessment Act 1997 Subsection 292-25(3)
Income Tax Assessment Act 1997 Section 302-10
Income Tax Assessment Act 1997 Subsection 302-10(3)
Income Tax Assessment Act 1997 Section 302-140
Income Tax Assessment Act 1997 Section 302-145
Income Tax Assessment Regulations 1997 Regulation 292-25.01
Income Tax Assessment Regulations 1997 Regulation 292-25.04
Superannuation Industry (Supervision) Act 1993 Section 19
Superannuation Industry (Supervision) Act 1993 Section 45
Superannuation Industry (Supervision) Regulations 1994 Division 7.2

Reasons for decision

Summary

From the facts provided, the proposed payment from the Deceased's member account balance will not be concessional contributions. The amount will be a superannuation death benefit.

The taxation arrangements that will apply to the superannuation death benefit will be determined in accordance with the taxation arrangements that would otherwise apply to the person or persons otherwise intended to benefit from the Estate.

Where a person who is not 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 non-dependant of the Deceased.

Detailed reasoning

Concessional contributions for a financial year are defined in section 292-25 of the ITAA 1997. The provision sets out in subsections (1),(2) and (3) which contributions will be covered as concessional contributions in the year the contribution is made.

From the facts of this case subsections 292-25(1) and (2) clearly do not apply to make the payment a concessional contribution and do not need to be examined.

Subsection 292-25(3) states:

An amount in a complying superannuation plan is covered under this subsection if it is allocated by the superannuation provider in relation to the plan for you for the year in accordance with conditions specified in the regulations.

Sub regulations 292-25.01(2) and (4) of the Income Tax Regulations 1997 (ITR 1997) deal with amounts allocated in certain ways and are assessable contributions of the fund [292-25.01(2)] and amounts paid from reserves [292-25.01(4)].

You have advised this pension was exclusively supported by the Deceased's account balance and not by an actuarial reserve or pool of pension assets or any other assets of the Fund. In addition, the account balance was directly attributable to the benefits funded for and by the Deceased during his working life and that no reserve has ever been created with respect to the Deceased's interest in the Fund and this payment is coming from that remaining balance. Under these circumstances the payment from the fund to the estate is not a concessional contribution covered by subsection 292-25(3) of the ITAA 1997.

As such, it is also not required to be reported in a member contributions statement for the purposes of the reporting requirements in Subdivision 390-A of the Taxation Administration Act 1953 (TAA 1953) in the income year the proposed payment is made to the Estate.

The taxation treatment of a superannuation death benefit paid to the Estate:

Section 302-10 of the ITAA 1997 applies to a trustee of a deceased estate who receives a superannuation death benefit in their capacity as trustee.

Subsection 302-10(3) specifies that, to the extent that 1 or more beneficiaries of the estate who were not death benefits dependants of the deceased is expected to benefit from the estate, the benefit is treated as if it were paid to the trustee as a person who was not a death benefits dependant of the deceased.

As the Fund trustee has been advised there are no death benefit dependants of the Deceased, the proposed payment will be a superannuation death benefit paid to the trustee of the Estate in accordance with subsection 302-10(3) of the ITAA 1997.

The superannuation death benefit will be subject to tax as if it were paid to a non-dependant of the Deceased to that extent. The non-dependant beneficiary is not presently entitled to this superannuation death benefit at this time and it therefore does not form part of his or her assessable income.

The amount ultimately distributed from the Estate to the beneficiaries will not be taxable in their hands because the amount will represent a distribution of the corpus of the Estate.