Edited version of private ruling

Authorisation Number: 1011912974150

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Ruling

Subject: Superannuation Death Benefit

Question 1

Is the lump sum payment from an allocated pension fund applied for before the death of the member, but received after the date of death, included in the member's assessable income for the 2010-11 income year?

Answer

No

Question 2

Is the lump sum payment from an allocated pension fund applied for before the death of the member, but received after the date of death, included in the assessable income of the deceased estate for the 2010-11 income year?

Answer

Yes

This ruling applies for the following period

Year ending 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The deceased held an allocated pension, and was over 60 years of age.

The deceased prior to their death wrote to their superannuation fund requesting to withdraw the funds.

The fund advised that they received the letter prior to the death of the deceased.

After the death of the deceased, the fund processed the withdrawal application and remitted the funds as a lump sum benefit on the same day.

Relevant legislative provisions

Section 302-10 of the Income Tax Assessment Act 1997
Subsection 307-5(1) of the Income Tax Assessment Act 1997
Subsection 302-10(1) of the Income Tax Assessment Act 1997
Subsection 302-10(3) of the Income Tax Assessment Act 1997
Subsection 307-5(4) of the Income Tax Assessment Act 1997
Section 307-65 of the Income Tax Assessment Act 1997
Section 307-65 of the Income Tax Assessment Act 1997
Subsection 101A(3) of the Income Tax Assessment Act 1936
Subsection 302-145(2) of the Income Tax Assessment Act 1997
Subsection 302-145(3) of the Income Tax Assessment Act 1997
Subsection 995-1(1) of the Income Tax Assessment Act 1997

Reasons for decision

Summary

The payment made by MLC after the death of the deceased is a superannuation death benefit.

The superannuation death benefit paid on 18 August 2010 will be taxed in the deceased's estate, in accordance with whether each person to receive part of that benefit is a dependant or non-dependant of the deceased.

Detailed reasoning

Subsection 995-1(1) of the ITAA 1997 states that a 'superannuation death benefit' has the meaning given by section 307-5.

A superannuation death benefit is defined in section 307-5 of the ITAA 1997 as including:

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

Section 302-10 of the ITAA 1997, which deals with superannuation death benefits paid to the Trustee of the Deceased Estate, states:

This section applies to you if:

· you are the trustee of a deceased estate; and

· you receive a superannuation death benefit in your capacity as trustee.

From the facts of the case, just prior to the date of death, the deceased completed a request to withdraw all of their superannuation account with the Fund.

However, the Fund did not process the withdrawal application until after the deceased's death, and remitted the funds as a lump sum benefit on that day.

Although the request was lodged prior to the date of death, the deceased died prior to payment.

In this case, the Fund made a payment to the Trustee of the Deceased Estate during the 2010-11 income year because the deceased was a fund member. Hence the payment is a superannuation death benefit within the meaning of section 307-5 of the ITAA 1997.

As a result of the operation of section 307-5 of the ITAA 1997, the payment can not be considered to have been paid to the deceased. Consequently, it is not wholly tax-free as if it were a superannuation benefit paid to a person over age 60.

As the payment in this case will be a superannuation death benefit received from a superannuation fund by the Trustee of the Estate, section 302-10 of the ITAA 1997 will apply to the Trustee of the Estate.

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 how the benefits would be taxed if received directly by the person or persons intended to benefit from the estate.

Where a dependant of the deceased is entitled to receive part or all of the superannuation death benefit from the estate, subsection 302-10(2) and section 302-60 of the ITAA 1997 operate to make that part of the benefit tax-free in the hands of the trustee.

However, 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, that part of the benefit will be subject to tax in the estate as if it were paid directly to a non-dependant of the deceased.

Please note, a tax-offset will apply to ensure that the tax payable by the trustee in respect of the death benefit will not exceed:

15% on any taxable component of the element taxed in the fund (subsection 302-145(2) of the ITAA 1997);

30% on the taxable component of the element untaxed in the fund (subsection 302-145(3) of the ITAA 1997).

When the payment is subsequently made from the estate to a beneficiary, the payment does not form part of that beneficiary's assessable income [subsection 302-10(3) of the ITAA 1997 and subsection 101A(3) of the ITAA 1936].