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Ruling

Subject: Tax treatment of superannuation death benefit

Question

Is the taxable component of a superannuation death benefit paid to you included in your assessable income?

Advice/Answer

Yes.

This ruling applies for the following period

Year ending 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

Your child (the Deceased) passed away in the 2010-11 income year.

The Deceased was a member of a superannuation fund (the Fund).

A superannuation lump sum payment summary issued by the Fund shows:

· a payment was made to you in the 2010-11 income year comprising:

Taxable component including:

· Taxed element

· Untaxed element

· tax withheld

· you are a non-dependant of the Deceased.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 302-C

Income Tax Assessment Act 1997 Subsection 302-145(1)

Income Tax Assessment Act 1997 Subsection 302-145(2)

Income Tax Assessment Act 1997 Subsection 302-145(3)

Reasons for decision

Summary

The taxable component of a superannuation death benefit paid to you is included in your assessable income.

The tax withheld by the Fund, is approximately equal to the maximum amount of tax payable by you on the death benefit, plus the Medicare levy.

Detailed Reasoning

Payments made to a person from a superannuation fund will generally comprise:

· a tax-free component; and

· a taxable component which may include:

· an element taxed in the fund; and/or

· an element untaxed in the fund.

A tax-free component will typically include personal contributions to the fund for which no tax deduction was claimed.

An element taxed in the fund will typically include employer contributions to the fund, personal contributions to the fund for which a tax deduction was claimed and earnings on the member's account balance. These are amounts included in the taxable income of the fund and taxed at 15%.

An element untaxed in the fund will typically include the proceeds of a life insurance policy taken out by the fund on the life of the member. These amounts are not included in the taxable income of the fund and have not already been subject to tax.

Consequently, where a member of a superannuation fund dies in the first few years after joining a fund, it is not usual for a superannuation death benefit to include a large untaxed element and a small taxed element.

Subdivision 302-C of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the taxation of death benefits made to non-dependant.

In this case a superannuation lump sum payment summary from the Fund shows a payment was made to you in the 2010-11 income year comprising of an element taxed in the fund and an element untaxed in the fund.

Under subsection 302-145(1) of the ITAA 1997 the taxable component of a superannuation lump sum paid on the death of an individual to a non-dependant will be assessable income.

A tax offset will ensure that the rate of tax payable on the taxed element of the taxable component of the superannuation death benefit will not exceed 15% (subsection 302-145(2) of the ITAA 1997).

A tax offset will also apply to ensure that the rate of tax payable on the untaxed element of the taxable component of the superannuation death benefit will not exceed 30% (subsection 302-145(3) of the ITAA 1997).

The tax withheld by the Fund is approximately equal to the maximum amount of tax payable in accordance with subdivision 302-C of the ITAA 1997, plus the Medicare levy.