Edited version of your written advice

Authorisation Number: 1012929709795

Date of advice: 21 December 2015

Ruling

Subject: Death benefit - dependency.

Questions

1. Is a payment (Payment A) made after the death of the Deceased to the executor of the Deceased's estate not assessable income and not exempt income?

2. Is a payment (Payment B) made after the death of the Deceased to the executor of the Deceased's estate not assessable income and not exempt income?

Advice/Answers

1. Yes.

2. Yes.

This ruling applies for the following period

Year ended 30 June 20XX

The scheme commenced on

1 July 20XX

Relevant facts and circumstances

The Deceased passed away during the relevant income year.

The Deceased's was employed by the Employer.

After the death of the Deceased, the Estate of the Deceased received payments from the Employer.

Payment A and Payment B was made to the Deceased's widow, the legal personal representative of the Deceased's estate. The Deceased's widow is the sole beneficiary of the Deceased's estate and a dependant of the Deceased.

A PAYG payment summary - employment termination payment for the year ended 30 June 20XX from the Employer for Payment A shows that the payment comprises wholly of a taxable component and no tax was withheld.

The above-mentioned PAYG payment summary was issued to the Deceased's estate however, the Tax File Number (TFN) was not that of the Deceased's estate but of the Deceased. Further, the ETP code displayed was N for non-dependant.

Another PAYG payment summary - employment termination payment was issued to the Deceased's estate, however, the TFN was not that of the Deceased's estate but of the Deceased. The PAYG payment summary from the Employer shows that Payment B comprises wholly of a taxable component, no tax was withheld and the ETP code displayed was T for trustee.

You state that total employment termination payments fall below the $185,000 cap.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 82-65

Income Tax Assessment Act 1997 Section 82-75

Income Tax Assessment Act 1997 Section 302-195

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

Reasons for decision

Summary

Payment A and Payment B are not assessable income and is not exempt income.

Detailed Reasoning

Under section 82-75 of the Income Tax Assessment Act 1997 (ITAA 1997), the taxation arrangements for death benefits paid to a trustee of a deceased estate are determined in accordance with the taxation arrangements that would otherwise apply to the person or persons otherwise intended to benefit from the estate.

This means that where a dependant of the deceased is expected to receive part or all of a death benefit, it will be subject to tax as if it were paid to a dependant of the deceased, and the benefit is taken to be income to which no beneficiary is presently entitled.

Where a person that is not a dependant is expected to receive part or all of a death benefit, it will be subject to tax as if it were paid to a non-dependant of the deceased to that extent, and the benefit is taken to be income to which no beneficiary is presently entitled.

Subsection 995-1(1) of the ITAA 1997 states that the term 'death benefits dependant' has the meaning given by section 302-195 of the ITAA 1997. Section 302-195 of the ITAA 1997 defines a 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.

In this case, although both PAYG payment summary - employment termination payment forms for the year ended 30 June 20XX contain the TFN of the Deceased they were issued to the Deceased's estate. Further, Payment A and Payment B were made to the Deceased's widow who is the legal personal representative of the Deceased's estate.

Therefore, it is considered that Payment A and Payment B have been made to the trustee of the Deceased's estate.

Section 82-65 of the ITAA 1997 sets out the taxation of death benefits for dependants. Section 82-65 of the ITAA 1997 states:

Tax free component

(1)  The *tax free component of a *death benefit termination payment that you receive after the death of a person of whom you are a *death benefits dependant is not assessable income and is not *exempt income.

Taxable component

(2)  If you receive a *death benefit termination payment after the death of a person of whom you are a *death benefits dependant:

(a) the part of the *taxable component of the payment mentioned in subsection (3) is not assessable income and is not *exempt income; and

(b) the remainder of the taxable component (if any) of the payment is assessable income.

(3)  The amount is so much of the *taxable component of the payment as does not exceed the *ETP cap amount.

(4)  The *ETP cap amount is reduced (but not below zero) by the amount worked out under subsection (3) for each *death benefit termination payment (if any) you have received earlier in consequence of the same employment termination, whether in the income year or an earlier income year.

In this case, the Deceased's widow is the sole beneficiary of the Deceased's estate and a dependant of the Deceased. In addition, Payment A and Payment B both comprise wholly of a taxable component and the ETP cap will not be exceeded. Therefore, Payment A and Payment B are not assessable income and not exempt income;