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Ruling

Subject: Death benefit - anti-detriment payment

Question 1:

Can one or more anti-detriment payments be made out of fund earnings not yet credited to a member's account?

Answer:

No.

This ruling applies for the following period:

Year ending 30 June 2013

The scheme commences on:

1 July 2012

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 Fund, which has a corporate trustee, is a self-managed superannuation fund which had more than one member.

In the 2011-12 income year one of the Fund's members died.

The Fund's trust deed (the Deed) was varied months after the deceased member's death.

The parties involved in the variation of the Fund's deed are the directors of the corporate trustee.

A rule in varied Deed authorises that the trustee may establish one or more reserve accounts for the Fund.

Subject to the requirements under superannuation law (the Fund remaining a complying SMSF), a rule in the varied Deed allows the trustee to add by way of cash or assets to a reserve account from any member superannuation interest, any other account of the Fund, any other reserve account, from earnings or from any other source including superannuation fund, trust or entity.

Subject to the requirements under superannuation law,(the Fund remaining a complying SMSF) a rule in the varied Deed specifies where a person who is a member of the Fund dies, a dependant member or the deceased member's legal estate may take a superannuation sum or commence a superannuation income stream or a combination of both at any time.

The Fund's balance sheet for the 2010-11 income year shows it has a deferred tax liability.

The deferred tax liability relates to unrealised capital gains on a category of assets held by the Fund (the Assets).

The Fund was in accumulation phase in the 2010-11 income year and a liability was raised in the accounts to reflect the potential income tax payable after allowing for one third discount on the disposal of the Assets should they be sold.

The Assets have not been sold but the amount of the liability, had the assets been sold, has been provided. The deferred tax liability amount has been raised in the accounts since the acquisition of the Assets.

The Fund accounts are prepared on an accruals basis.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 292-25

Income Tax Assessment Act 1997 Subsection 292-25(1)

Income Tax Assessment Act 1997 Subsection 292-25(2)

Income Tax Assessment Act 1997 Subsection 292-25(3)

Income Tax Assessment Act 1997 Section 295-485

Income Tax Assessment Act 1997 Subsection 295-485(1)

Income Tax Assessment Regulations 1997 Regulation 292-25.01

Income Tax Assessment Regulations 1997 Sub-regulation 292-25.01(4)

Income Tax Assessment Regulations 1997 Paragraph 292-25.01(4)(b)

Income Tax Assessment Regulations 1997 Sub-sub-paragraph 292-25.01(4)(b)(ii)(B)

Superannuation Industry (Supervision) Act 1993 Section 115

Superannuation Industry (Supervision) Regulations 1994 Sub-regulation 1.03(1)

Superannuation Industry (Supervision) Regulations 1994 Paragraph 1.06(1A)(d)

Superannuation Industry (Supervision) Regulations 1994 Sub-regulation 1.06(2)

Superannuation Industry (Supervision) Regulations 1994 Sub-regulation 1.06(6)

Superannuation Industry (Supervision) Regulations 1994 Paragraph 1.07B(1)(c)

Superannuation Industry (Supervision) Regulations 1994 Sub-regulation 1.07B(3)

Superannuation Industry (Supervision) Regulations 1994 Sub-regulation 1.07B(4)

Superannuation Industry (Supervision) Regulations 1994 Division 5.2 of Part 5

Superannuation Industry (Supervision) Regulations 1994 Sub-regulation 6.21(1)

Superannuation Industry (Supervision) Regulations 1994 Sub-regulation 6.21(2)

Superannuation (Excess Concessional Contributions Tax) Act 2007 Section 4

Superannuation (Excess Concessional Contributions Tax) Act 2007 Section 5

Taxation Administration Act 1953 Schedule 1, Section 357-55

Taxation Administration Act 1953 Schedule 1, Subsection 359-5(1)

Reasons for decision

Summary

A deduction for an anti-detriment payment is not available to the Fund as it does not propose to make a superannuation lump sum payment because of the death of the member to either the trustee of the deceased's estate or a spouse, former spouse or child of a deceased.

Detailed reasoning

Anti-detriment payments

An 'anti-detriment payment' is an additional amount included in a superannuation death benefit paid by a complying superannuation fund (pursuant to the governing rules of the fund) to dependants of a deceased person who was a member of the fund.

The amount is in addition to the deceased person's account balance in the fund and is effectively a refund to the dependant of the deceased person representing the contributions tax that has been paid by the fund.

A complying superannuation fund may claim a deduction in respect of an anti-detriment payment under section 295-485 of the ITAA 1997 which states:

(1) An entity that is a *complying superannuation fund, or a *complying approved deposit fund, and has been since 1 July 1988 (or since it came into existence if that was later) can deduct an amount under this section if:

(a) it pays a *superannuation lump sum because of the death of a person to the trustee of the deceased's estate or an individual who was a *spouse, former spouse or *child of the deceased at the time of death or payment; and (emphasis added)

(b) it increases the lump sum by an amount, or does not reduce the lump sum by an amount (the tax saving amount) so that the amount of the lump sum is the amount that the fund could have paid if no tax were payable on amounts included in assessable income under Subdivision 295-C.

…

(2) The fund can deduct the amount in the income year in which the lump sum is paid.

…

As previously stated, a deduction under section 295-485 of the ITAA 1997 is only allowable to complying superannuation funds. If the Trustee, in making the payment, contravenes the Superannuation Industry (Supervision) Act 1993 (SISA), and as a result the Fund is made non-complying, no deduction in respect of the anti-detriment payment can be claimed.

In view of the above, a Trustee is also required to comply with the requirements of sub-regulations 6.21(1) and (2) of the Superannuation Industry (Supervision) Regulations 1994 (SISR):

Subject to sub-regulation (3), a member's benefits in a regulated superannuation fund must be cashed as soon as practicable after the member dies.

The form in which benefits may be cashed under this regulation is any one or more of the following forms:

in respect of each person to whom benefits are cashed:

· a single lump sum; or

· an interim lump sum (not exceeding the amount of the benefit ascertained at the date of the event mentioned subregulation (1) and a final lump sum (not exceeding the balance of the benefits as finally ascertained in relation to the event;

· … (emphasis added)

Accordingly, an anti-detriment payment made in respect of the deceased member's death must be made 'as soon as practicable after the member dies.'

As the tax concession given to a complying superannuation fund hinges on whether the fund is able to maintain its status as complying, it is incumbent upon the trustee of the fund to ensure that it complies with the provisions in the SISA when making the payment. This includes the making of any payment in accordance with the payment standards under Part 6 of the SISR, as indicated above, and Division 5.2 of Part 5 of the SISR which relates to minimum benefit payment standards.

As the facts in this case show that a number of months have elapsed from the time of the member's death to the date the Fund's deed was varied, and the member's benefits have still to be cashed, the Commissioner has concerns whether the payment of the deceased member's benefits satisfy the requirement that they 'be cashed as soon as practicable after the member dies'.

Notwithstanding the above, it is considered that a deduction under section 295-485 of the ITAA 1997 would not apply in this case as the fund is proposing to implement a reversionary pension rather than pay a lump sum payment as stated under the legislation.