Edited version of your private ruling

Authorisation Number: 1012442520369

Ruling

Subject: Death benefit

Question

Is the surviving spouse of a deceased taxpayer a death benefits dependant?

Answer:

Yes.

This ruling applies for the following period:

Year ending 30 June 2013

The scheme commences on:

1 July 2012

Relevant facts and circumstances

Your client was the spouse of the deceased for more than ten years.

Your client and the deceased separated but reconciled some months later.

In the relevant income year your client and the deceased separated again whereby your client left the marital home where most of your client's belongings remained.

You state:

(a) the separation between the spouses was amicable;

(b) there were no plans to sell the marital home;

(c) your client regularly attended to the maintenance of the property;

(d) the spouses continued to conduct their financial arrangements by using a joint bank account; and

(e) the spouses were not divorced from each other.

The deceased passed away in the relevant income year.

The deceased was a member of more than one superannuation fund (the superannuation funds).

The superannuation funds have paid lump sum superannuation death benefit payments to the deceased's estate (the Estate).

Your client is the executor and the sole beneficiary of the Estate.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 101A(3)

Income Tax Assessment Act 1997 Division 302.

Income Tax Assessment Act 1997 Subdivision 302-B.

Income Tax Assessment Act 1997 Section 302-10.

Income Tax Assessment Act 1997 Subsection 302-10(2).

Income Tax Assessment Act 1997 Subsection 302-60.

Income Tax Assessment Act 1997 Section 302-195.

Income Tax Assessment Act 1997 Subsection 302-195(1).

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

Acts Interpretation Act 1901 Section 2E.

Reasons for decision

Summary

Your client is a death benefits dependant of the deceased as your client was a spouse of the deceased.

Accordingly, as your client is a death benefits dependant and the sole beneficiary of the deceased's estate, the death benefits;

(a) are not assessable income and not exempt income in the hands of the Trustee of the Estate. As the death benefits are tax-free, the benefits are not included in the assessable income of the Estate; and

(b) do not represent assessable income of your client when the death benefits are paid to your client by the Estate.

Detailed reasoning

Superannuation death benefits

Division 302 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the taxation arrangements that apply to the payment of superannuation death benefits.

These arrangements depend on whether the person who receives the superannuation death benefit is a death benefits dependant of the deceased and whether the amount is paid as a superannuation lump sum death benefit or a superannuation income stream death benefit.

Where a person receives a superannuation death benefit and that person is a death benefits dependant of the deceased, the payment is not assessable income and is not exempt income.

Subsection 302-195(1) of the ITAA 1997 defines death benefits dependant as follows:

A death benefits dependant, of a person who has died, is:

(a) the deceased person's spouse or former spouse; or

(b) the deceased person's child, aged less than 18; or

(c) any other person with whom the deceased person had an interdependency relationship under section 302-200 just before he or she died; or

(d) any other person who was a dependant of the deceased person just before he or she died.

Subsection 995-1(1) of the ITAA 1997 states:

spouse of an individual includes:

(a) another individual (whether of the same sex or a different sex) with whom the individual is in a relationship that is registered under a *State law or *Territory law prescribed for the purposes of section 2E of the Acts Interpretation Act 1901 as a kind of relationship prescribed for the purposes of that section; and

(b) another individual who, although not legally married to the individual, lives with the individual on a genuine domestic basis in a relationship as a couple.

In relation to section 2E of the Acts Interpretation Act 1901 states:

Section 2E 

2E Registered Relationships 

For the purposes of paragraph 2D(a), a person is in a registered relationship with another person if the relationship between the persons is registered under a prescribed law of a State or Territory as a prescribed kind of relationship.

In your client's case, regardless of the fact that your client was separated from the deceased, the facts show your client was a spouse of the deceased, as defined above, at the time of the deceased's death.

In view of the above your client is a death benefits dependant of the deceased as your client satisfies paragraph 302-195(1)(a) of the ITAA 1997.

Death benefit payment made to the Trustee of the Estate

In accordance with subsection 101A(3) of the ITAA 1936,death benefits paid directly to the Trustee of an Estate are usually disclosed in an income tax return lodged by the Trustee of the deceased Estate for the relevant income year in which the death benefit is received.

In relation to how death benefits made to an estate are treated section 302-10 of the ITAA 1997 states:

302-10(1) 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.

302-10(2) To the extent that 1 or more beneficiaries of the estate who were 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 you as a person who was a death benefits dependant of the deceased; and

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

The effect of the above is that where a death benefit is paid to the Trustee, and there are dependant beneficiaries, the tax rates applied are determined by reference to the relevant sections in Subdivision 302-B of the ITAA 1997.

In your client's case, as your client is a death benefits dependant and the facts show that:

(a) your client is the sole beneficiary of the estate; and

(b) the superannuation death benefits from the superannuation funds were paid as lump sum payments;

section 302-60 of the ITAA 1997 will apply whereby the superannuation lump sums are not assessable income and not exempt income in the recipients hands. It follows, therefore, that the recipient is not liable to pay tax on the superannuation lump sum death benefit.

Consequently, the superannuation death benefits are not included in the assessable income of the Estate under subsection 302-10(2) of the ITAA 1997 and the benefits should not be included in the income tax return of the Estate.

When the death benefits are paid to your client by the Estate, your client will not be liable to pay income tax on the benefits as they will represent a distribution of the corpus of the Estate.