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Edited version of your private ruling
Authorisation Number: 1012496255411
Ruling
Subject: Superannuation death benefit
Question 1
Is the taxpayer liable to pay tax on superannuation death benefits paid by the superannuation fund?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 2014.
The scheme commences on:
1 July 2013.
Relevant facts and circumstances
The deceased died during a particular income year.
The deceased's sibling (the taxpayer) is a joint executor of the deceased estate (the Estate) and was not a dependant of the deceased.
The deceased was a member of a superannuation fund (the Fund) and under the provisions of the will, left 25% of the proceeds of the superannuation policy to the taxpayer. No query is raised about this amount.
The superannuation policy also contained a death benefit component. In the letter from the Fund trustee, it was advised they would also pay the taxpayer 25% of the death benefit component.
The legal representative of the deceased's child commenced legal proceedings.
The parties have proposed that the legal proceedings in the Court be settled according to the terms as set out under the proposed agreement.
The relevant clause of the proposed agreement is for an order to be made pursuant to the relevant legislation for the whole amount of the death benefit previously payable by the Fund to the taxpayer be paid to the 'notional estate' of the deceased's child for their future benefit.
At the date of this ruling the Fund has not made any payments of the death benefit entitlement. In addition, none of the benefits are being paid to the deceased's estate i.e. they are going directly to other family members.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 302-10
Income Tax Assessment Act 1997 Subsection 302-10(3)
Income Tax Assessment Act 1997 Section 302-140
Income Tax Assessment Act 1997 Section 302-145
Reasons for decision
Summary
The effect of the proposed order to be made under the terms of the proposed agreement is the taxpayer is no longer entitled to the payment from the Fund and will not receive the lump sum.
In view of this, there are no tax consequences for the taxpayer.
Detailed reasoning
Meaning of a death benefits dependant
Subsection 302-195(1) of the ITAA 1997 is as follows:
A death benefits dependant , of a person who has died, is:
(a) the deceased's person's spouse or former spouse; or
(b) the deceased's 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 just before he or she died.
Death benefits to a non-dependant
A non-dependant of the deceased may receive a superannuation lump sum. The tax free component of this lump sum is not assessable and therefore the person is not liable to pay tax on this amount (Section 302-140 of the ITAA 1997).
Different taxation arrangements apply to the element taxed in the fund and the element untaxed in the fund that makes up the taxable component. A tax offset is available to ensure the tax rate on the element taxed in the fund is not greater than 15 per cent. The person is also entitled to a tax offset to ensure that the tax payable on the element untaxed in the fund does not exceed 30 per cent (Section 302-145 of the ITAA 1997).
In this case the taxpayer is a non-dependant of the deceased, however, as the taxpayer is no longer entitled to the monies from the Fund and will not be getting a benefit, there is no amount to be included in the taxpayer's assessable income.
Death benefits to a dependant
Where a person receives a superannuation lump sum death benefit and that person was a dependant of the deceased, it is not assessable income and is not exempt income. This means the person is not liable to pay tax on this amount (Section 302-160 of the ITAA 1997). In this case, the recipient of the Fund monies is the infant child of the deceased and would clearly meet the definition of a 'death benefit dependant' per paragraph (b) of sub section 302-195(1).