Edited version of your written advice

Authorisation Number: 1012735820454

Ruling

Subject: Superannuation benefit - roll-over

Question

1. Did the taxpayer's superannuation death benefit income stream cease when they rolled over their superannuation benefit from one superannuation fund to another?

2. Is the superannuation benefit that arose from the commutation of the taxpayer's superannuation death benefit income stream a superannuation member benefit?

Answer

1. Yes

2. Yes

This ruling applies for the following period:

Income year ending 30 June 2015

The scheme commences on:

1 July 2014

Relevant facts and circumstances

The deceased passed away during the relevant income year.

The taxpayer was the spouse of the deceased and a death benefits dependant.

More than 3 months after the death of the deceased, the taxpayer commenced a death benefit income stream from a superannuation fund (Fund A).

More than 3 months after this, during the subsequent income year, the taxpayer rolled over their superannuation benefit from Fund A to another superannuation fund (Fund B).

Relevant legislative provisions

Income Tax Assessment Act 1997 section 306-10

Income Tax Assessment Act 1997 paragraph 306-10(a)

Income Tax Assessment Act 1997 subsection 307-5(1)

Income Tax Assessment Act 1997 subsection 307-5(3)

Income Tax Assessment Act 1997 paragraph 307-5(3)(c)

Income Tax Assessment Act 1997 subsection 307-5(3A)

Income Tax Assessment Act 1997 section 307-15

Income Tax Assessment Act 1997 section 307-65

Reasons for decision

Summary

The taxpayer's death benefit income stream ceased as they at the time of the commutation of their superannuation income stream entitlements into an entitlement to a lump sum prior to the roll-over. This is because it is not possible to roll-over superannuation income stream benefits directly.

The superannuation benefit that arose from the commutation of the taxpayer's superannuation death benefit income stream is a superannuation member benefit due to the operation of subsection 307-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997).

Detailed reasoning

Roll-over superannuation benefit

The definition of a roll-over superannuation benefit is outlined in section 306-10 of the ITAA 1997. According to the legislation:

A superannuation benefit is a roll-over superannuation benefit if:

(a) the benefit is a superannuation lump sum and a superannuation member benefit; and

(b) the benefit is not a superannuation benefit of a kind specified in the regulations; and

(c) the benefit satisfies any of the following conditions:

(i) it is paid from a complying superannuation plan;

(ii) it is an unclaimed money payment;

(iii) it arises from the commutation of a superannuation annuity; and

(d) the benefit satisfies any of the following conditions:

(i) it is paid to a complying superannuation plan;

(ii) it is paid to an entity to purchase a superannuation annuity from the entity. (emphasis added)

This means that unless a superannuation benefit is a superannuation lump sum, it cannot be a roll-over superannuation benefit and so cannot be rolled over from one fund to another.

The definition of a superannuation lump sum is provided in section 307-65 of the ITAA 1997, which states that:

A superannuation lump sum is a superannuation benefit that is not a superannuation income stream benefit (see section 307-70)

This therefore means that the benefits from a superannuation income stream cannot be rolled over from one fund to another without first commuting the entitlement to future benefits into an entitlement to a lump sum.

The Commissioner's views on when a superannuation income stream has ceased is discussed in Taxation Ruling TR 2013/5 (TR 2013/5) entitled 'Income Tax: when a superannuation income stream commences and ceases.' Relevantly, paragraphs 23 and 24 state that:

23. A superannuation income stream ceases when a request from a member or a dependant beneficiary to fully commute their entitlements to future superannuation income stream benefits for an entitlement to a lump sum takes effect.

24. A request to fully commute a superannuation income stream takes effect as soon as the trustee's liability to pay periodic superannuation income stream benefits to the member or a dependant beneficiary is substituted with a liability to pay that member or dependant beneficiary a superannuation lump sum.

In the taxpayer's case, a roll-over from Fund A to Fund B occurred during the subsequent income year. The very fact that a roll-over has occurred means that the taxpayer commuted their future income stream entitlements into an entitlement to a lump sum prior to the roll-over. In turn, the fact that the commutation has occurred means that the taxpayer's death benefit income stream has ceased.

Note that this is the case even if the taxpayer is currently receiving superannuation income stream benefits from Fund B. Any income stream benefits that the taxpayer currently receives from Fund B are benefits from an entirely new income stream. They are not benefits from the original death benefit income stream.

Superannuation member benefit

The lump sum payment that arises from the commutation of the taxpayer's superannuation income stream entitlements is a superannuation benefit. Superannuation benefits can be split into two types: superannuation member benefits and superannuation death benefits. The characteristics of these two types of benefits are outlined in subsection 307-5(1) of the ITAA 1997.

But for the application of 307-5(3) of the ITAA 1997, the superannuation lump sum would be a superannuation death benefit as it is a payment described in column 3 of item 1 of the table in subsection 307-5(1) of the ITAA 1997. This is because the payment would be:

• taken to be made to, or received by, the taxpayer by virtue of section 307-15 of the ITAA 1997 because the payment would be made for the taxpayer's benefit (and also at the taxpayer's direction or request); and

• made from 'a superannuation fund, after another person's death, because the other person was a fund member.'

However, the effect of subsection 307-5(3) of the ITAA 1997, if its various requirements are satisfied, is to treat the superannuation benefit to which it applies as a superannuation member benefit rather than as a superannuation death benefit (which it would be apart from that subsection).

According to subsection 307-5(3) of the ITAA 1997:

(3) A superannuation benefit is also a superannuation member benefit if:

(a) the superannuation benefit arises from the commutation of a superannuation income stream; and

(b) it would be a superannuation death benefit apart from this subsection; and

(c) the benefit is paid after the latest of the following:

(i) 6 months after the death of the deceased person;

(ii) 3 months after the grant of probate of that deceased person's will or letters of administration of that deceased person's estate;

(iii) if the payment of the benefit is delayed because of legal action about entitlement to the benefit--6 months after the legal action ceases;

(iv) if the payment of the benefit is delayed because of reasonable delays in the process of identifying and making initial contact with potential recipients of the benefit--6 months after that process is completed; and

(d) the Commissioner has not made a decision about the benefit under subsection (3A).

Subsection 307-5(3A) of the ITAA 1997 outlines two scenarios where the Commissioner may make a decision in writing that the superannuation benefit in question is not a superannuation member benefit. The scenarios outlined are situations where the payment of the benefit has been delayed due to legal action or due to delays in the process of identifying and making initial contact with potential recipients.

In the taxpayer's case, there was no legal action and there were no delays in the process of identifying and making initial contact with potential recipients. According to the facts of the case, the roll-over to Fund B occurred more than 6 months after the death of the deceased and more than 3 months after the commencement of the death benefit income stream. As the superannuation benefit also satisfies the other requirements in subsection 307-5(3) of the ITAA 1997, the lump sum superannuation benefit is a superannuation member benefit.

It should also be noted that if a superannuation benefit is a superannuation death benefit rather than a superannuation member benefit, then it cannot be rolled over. This is because paragraph 306-10(a) of the ITAA 1997 states that in order to be a roll-over superannuation benefit, the benefit must be 'a superannuation lump and a superannuation member benefit.' In other words, if a roll-over has occurred, then the superannuation benefit in question can no longer be a death benefit.