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Ruling

Subject: taxation of superannuation benefits

Question

Can the Commissioner of Taxation exercise his discretion to treat the payment made by the superannuation fund after the death of the sole member as if it were made prior to the sole member's death?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

The Fund is a complying self-managed superannuation fund.

The Deceased was the sole member of the Fund.

The Deceased passed away in the relevant year, and was over 60 years of age at that time.

The trustees of the Fund were the Deceased and the Deceased's sibling.

You are the accountants for the Fund.

A number of days prior to the date of death, the Deceased advised you that they were terminally ill.

The Deceased subsequently advised their broker to dispose of the Fund's shareholdings, withdraw the resulting monies from the Fund and pay them into the Deceased's personal bank account. The transfer of the proceeds into the bank account took place after the Deceased passed away.

Most of the shares were sold before the Deceased passed away.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 101A(3).

Income Tax Assessment Act 1997 Section 302-10.

Income Tax Assessment Act 1997 Subsection 307-5(1).

Income Tax Assessment Act 1997 Subsection 307-5(4).

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

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

Income Tax Assessment Act 1997 Subsection 995-1(1).

Reasons for decision

Summary of decision

The Commissioner has no discretion to treat a transaction that occurs after the death of a member of a superannuation fund as if it occurred prior to the death of the member.

The payment made by the Fund after the death of the Deceased is a superannuation death benefit made to either the Trustee of the Deceased Estate or the nominated beneficiary (or beneficiaries), depending on the provisions of the trust deed of the Fund.

If the benefit is to be paid to a nominated beneficiary under the provisions of the trust deed of the Fund and that nominated beneficiary is a non-dependant of the Deceased, tax will be required to be withheld by the Fund from the taxable component of the superannuation death benefit.

If the benefit is to be paid to the Trustee of the Deceased Estate no tax will be required to be withheld by the Fund from the taxable component of the superannuation death benefit.

Detailed reasoning

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

A superannuation death benefit is defined at Item 1, Column 3 of the table contained in subsection 307-5(1) of the ITAA 1997 as being:

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 a deceased estate, states:

This section applies to you if:

(a) you are the trustee of a deceased estate; and

(b) you receive a superannuation death benefit in your capacity as trustee.

Where the superannuation death benefit is paid to the trustee of the deceased estate it is income of the estate to which no beneficiary is presently entitled (subsection 101A(3) of the Income Tax Assessment Act 1936). The superannuation fund trustee is not required to withhold tax from the taxable component. However, the trustee of the deceased estate is liable for any tax payable in respect of the taxable component to the extent to which non-dependant beneficiaries are likely to benefit from the estate.

Where the superannuation death benefit is paid directly to a person who is not a death benefits dependant of the deceased, the taxable component of the lump sum is assessable income (subsection 302-145(1) of the ITAA 1997).

Subsection 302-145(2) of the ITAA 1997 allows a tax-offset to be applied that ensures the rate of income tax on the element taxed in the superannuation fund does not exceed 15%.

The superannuation fund trustee is required to withhold tax from the taxable component at the rate of 15% where the taxable component consists of an element taxed in the fund.

In the present case it is quite evident that the benefit paid by the superannuation fund was made after the death of the member. Whilst it is acknowledged that the Deceased intended for the balance of their superannuation account to be paid to them before they died, regrettably this did not occur.

Accordingly, the payment made by the Fund after the death of the Deceased is a superannuation death benefit made to either the Trustee of the Deceased Estate or the nominated beneficiary (or beneficiaries), depending on the provisions of the trust deed of the Fund.

You have asked for the Commissioner of Taxation to exercise his discretion to treat the payment as if it were paid to the Deceased before they died. Alternatively, you are requesting that the Commissioner waive any tax payable on the superannuation death benefit.

Regrettably, the Commissioner has no discretion to exercise to treat the payment as if it were paid to the Deceased before they died.