Edited version of your written advice

Authorisation Number: 1012699105469

Ruling

Subject: Exempt current pension income - death of a member

Questions

Is the self-managed superannuation fund entitled to claim the exclusion for exempt current pension income after the date of death of the sole member?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2014

The scheme commenced on

1 July 2013

Relevant facts and circumstances

The Fund is a complying superannuation fund.

The sole member of the Fund (the Deceased) passed away in the 2012-13 income year.

Immediately prior to the Deceased's death the Deceased was receiving an account based pension.

On the death of the Deceased, the pension did not automatically revert to another person.

All assets of the Fund were realised by in the 2013-14 income year and paid to the nominated beneficiaries of the Fund.

The Fund's assets included two investments.

You state that there was a delay in finalising the investments due to difficulties with the financial institution.

Letters from the financial institution indicates the investments were finalised as per the Funds request in the 2013-14 income year.

No amounts other than investment earnings were added to the superannuation interest on or after the Deceased's death.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 295-F

Income Tax Assessment Regulations 1997 regulation 995-1.01

Income Tax Assessment Regulations 1997 subregulation 995-1.01(3)

Reasons for decision

Summary

It is considered that the payments have been made as soon as it was practicable.

The Fund has made superannuation income stream benefits and will be able to claim the exclusion for exempt current pension income after the date of death of the sole member.

Detailed reasoning

Income that a complying superannuation fund derives from assets set aside or used to pay superannuation income stream benefits to members, which would otherwise be assessable income, is deemed to be exempt income where the conditions in Subdivision 295-F of the Income Tax Assessment Act 1997 (ITAA 1997) are satisfied for an income year. Such income is commonly referred to as exempt current pension income (ECPI).

The ITAA 1997 defines "superannuation income stream benefit" with reference to the Income Tax Assessment Regulations 1997 (ITAR 1997). The meaning of superannuation income stream benefit is set out in regulation 995-1.01.

Subregulations 995-1.01(2) to (5) of the ITAR 1997 expand the meaning of superannuation income stream benefit for the purposes of sections 295-385, 295-390 and 295-395 of the ITAA 1997 which relate to ECPI of a superannuation fund amongst other provisions.

In particular, subregulation 995-1.01(3) of the ITAR 1997 states:

For the purposes of sections 295-385, 295-390, 295-395, 320-246 and 320-247 of the Act, if:

(a) a superannuation death benefit that is a superannuation lump sum is paid after the death of a person (the deceased) using only an amount from a superannuation interest; and

(b) immediately before the deceased's death, the superannuation interest was supporting a superannuation income stream payable to the deceased; and

(c) the superannuation income stream did not automatically revert to another person on the death of the deceased;

the amount paid as the superannuation lump sum, to the extent it is not attributable to any amount (other than investment earnings) added to the superannuation interest on or after the deceased's death, is taken to be the amount of a payment from a superannuation income stream of a superannuation income stream benefit that was payable from the day of the deceased's death until as soon as it was practicable to pay the superannuation lump sum.

The above means that where all conditions are satisfied, a superannuation fund will continue to be entitled to the earnings tax exemption for a specified period after the death of a member in relation to earnings on an amount that is paid as a superannuation death benefit lump sum.

The Explanatory Statement to the Income Tax Assessment Amendment (Superannuation Measures No. 1) Regulation 2013 (the ES) gives an example which explains this. Example 3 of the ES states:

Arthur was a member of a complying superannuation fund who was receiving a superannuation income stream immediately before his death on 1 September 2012. The income stream did not automatically revert to another person on Arthur's death and no amounts (other than investment earnings) were added on or after his death to the superannuation interest that was supporting the income stream.

After undertaking a claims staking process, the trustee of the fund determined that the entire value of the deceased member's benefits in the fund would be paid to the deceased's widow as a lump sum. On 20 December 2012, which was in the circumstances as soon as practicable after Arthur's death, a single lump sum of $100,000 was paid to the widow using only an amount from the relevant superannuation interest.

For the purposes of the earnings tax exemption, the $100,000 will be taken to be the amount of a superannuation income stream benefit that was payable from 1 September 2012 until 20 December 2012.

In this case, the sole member of the Fund passed away in the 2012-13 income year. Immediately prior to death the Deceased was receiving an account based pension. On the death of the Deceased, the pension did not automatically revert to another person.

Further, no amounts other than investment earnings were added to the superannuation interest on or after the Deceased's death.

There was a delay in two investments being finalised with a financial institution.

All assets of the Fund have been realised and payments have been made to the nominated beneficiaries of the Fund.

It is considered that the payments have been made as soon as it was practicable.

In this case, subregulation 995-1.01(3) of the ITAR 1997 has been satisfied. Therefore, the Fund has made superannuation income stream benefits and will be able to claim ECPI from the date of the Deceased's death until the finalisation of the investments of the Fund under subdivision 295-F of the ITAA