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Ruling

Subject: Superannuation payments to a deceased estate

Question 1

Are you assessable on the taxed and untaxed components of the superannuation death benefit paid by superannuation fund to the trustee?

Answer:

Yes

Question 2

Are you assessable on a superannuation pension income stream paid to the estate from a superannuation fund?

Answer:

Yes

Question 3

Are you entitled to a tax offset in relation to the superannuation pension income stream paid to the estate from a superannuation fund?

Answer:

Yes

Question 4

Are you assessable on interest received from a bank paid to the estate?

Answer:

Yes

This ruling applies for the following periods:

30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

The deceased passed away during the income year ended 30 June 2011, aged over 60 years.

The superannuation fund paid a lump sum to his estate:

· taxable component being a taxed element

· taxable component being an untaxed element

· a tax free component.

· tax withheld

A superannuation pension income stream was received by the estate.

The superannuation payments flowed through to the deceased's children who are over the age of 18 years.

Interest was received from a bank.

No beneficiary is presently entitled to the income of the estate for the year ended 30 June 2011.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 101A.

Income Tax Assessment Act 1936 Section 99

Income Tax Assessment Act 1936 Section 99A

Income Tax Assessment Act 1997 Section 301-100

Income Tax Assessment Act 1997 Section 302-10

Income Tax Assessment Act 1997 Section 302-140

Income Tax Assessment Act 1997 Section 302-145

Income Tax Assessment Act 1997 Section 302-100

Reasons for decision

Assessable income of a deceased estate includes income from all sources received by the estate after the death of the deceased. Such income could consist of salary and wages, any leave payments and eligible termination payments, investment income, etc. 

These types of income are assessable in the hands of the trustee if no beneficiary is presently entitled under section 99 or 99A of the Income Tax Assessment Act 1936 (ITAA 1936).

Section 101A of the ITAA 1936 provides for the assessment of an amount received by the trustee of the estate of a deceased person where the amount would have been assessable income of that person had it been received during his or her lifetime. In other words, the trustee of the deceased estate assumes the role of the deceased taxpayer for taxation purposes.

Superannuation death benefits

Subsection 101A(3) of the ITAA 1936 brings into the assessable income of the trust estate an superannuation lump sum received after the death of a taxpayer and provides that the amount is income to which no beneficiary is presently entitled. The result of this provision is that any tax liability raised in respect of the superannuation lump sum will be borne by the trustee of the estate rather than the beneficiaries.

Section 302-10 of the Income Tax Assessment Act 1997 (ITAA 1997) applies to superannuation death benefits paid to a trustee of a deceased estate for the year ending 30 June 2008 and later years.

Under subsection 302-10(3) of the ITAA 1997, to the extent that one or more beneficiaries of the estate who were not death benefits dependants of the deceased have benefited, or may be expected to benefit, from the superannuation death benefit:

(a) the benefit is treated as if it had been paid to the trustee as a person who was not a death benefits dependant of the deceased; and

(b) the benefit is taken to be income to which no beneficiary is presently entitled.

Section 302-145 of the ITAA 1997 sets out the taxation of the taxable component of a superannuation lump sum death benefit paid to a non-dependent.

Subsection 302-145(1) of the ITAA 1997 states that if you receive a superannuation lump sum because of the death of a person to whom you are not a death benefits dependant, the taxable component of the lump sum is assessable income. However, subsections 302-145(2) and 302-145(3) of the ITAA 1997 provide for a rebate to limit the maximum rate of income tax that can be applied to each of the elements, being:

· 15% for the element taxed in the fund;

· 30% for the element untaxed in the fund.

Section 302-140 provides that the tax free component of a superannuation lump sum paid to a non-dependant is tax free.

In this case, the payment from the superannuation fund in respect of the deceased paid to the trustee of the deceased estate is assessable to the trustee according to its various components and is income to which no beneficiary is entitled.

The amount of the death benefit superannuation which is included in the assessable income of the trust estate is:

· taxable component (15%) being a taxed element

· taxable component (30%) being a untaxed element

· with tax withheld

Superannuation income stream.

Section 301-100 of the ITAA 1997 applies to a superannuation income stream benefit from the element untaxed in the superannuation fund. This section states the following:

(1) If you are 60 years or over when you receive a superannuation income stream benefit, the element untaxed in the fund of the benefit is assessable income.

(2) You are entitled to a tax offset equal to 10% of the element untaxed in the fund of the benefit.

As the superannuation pension which you received comprises a taxable untaxed component and the deceased was over 60 years of age, the pension income will be assessable and you will be entitled to the 10% tax off set on the income.

Interest income from a bank

You are assessable on interest you receive after the date of death of the deceased. Therefore, the amount of interest received from a bank is included in the assessable income of the deceased estate.