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Edited version of your written advice
Authorisation Number: 1013094364952
Date of advice: 20 September 2016
Ruling
Subject: Taxation of superannuation benefits
Question
For the purposes of section 303-10 of the Income Tax Assessment Act 1997 (ITAA 1997), will the Commissioner treat a certain payment (the Payment) as a superannuation member benefit?
Answer
No.
This ruling applies for the following period
Income year ended 30 June 20XX
The scheme commenced on
1 July 20XX
Relevant facts and circumstances
A self-managed superannuation fund (the Fund) is a complying superannuation fund.
The member (the Deceased) was the sole member of the Fund and the director of the corporate trustee of the Fund.
During the relevant income year, the Deceased was diagnosed with a terminal illness and given six months to live.
A few days later, the Deceased directed their child to commence winding up of the Fund. The intention was to withdraw the Deceased's entire benefits from the Fund.
The Deceased's child contacted the Deceased's stockbroking firm (the Firm) and instructed them to transfer immediately all of the Fund's assets, including a bank deposits (the Term Deposit), to the Deceased.
About two weeks later, the Deceased's child returned from his relative's funeral and discovered that the Firm did not act as instructed. They had commenced the transfer, however the holder of the Term Deposit (the Bank), required a 30 day notice in order to release the funds.
Several days later, the Deceased died.
Subsequently, the Term Deposit was released by the Bank and the proceeds were paid into the Fund.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 303-10
Income Tax Assessment Act 1997 Section 307-5
Income Tax Assessment Act 1997 Subsection 995-1(1)
Reasons for decision
Summary
The proceeds from the Term Deposit were not paid by the Fund to the Deceased because they were a member of the Fund. Instead, the payment was made by the Bank to the Fund because the Deceased, in their capacity as the director of the trustee of the Fund, requested the payment be made. As such, the payment it is not a superannuation member benefit for the purposes of section 303-10 of the ITAA 1997.
There is no discretion that can be exercised by the Commissioner to treat the proceeds from the Term Deposit as having been made to the Deceased prior to their death.
Therefore, section 303-10 of the ITAA 1997 does not apply in this case.
Detailed Reasoning
Section 303-10 of the ITAA 1997 sets out the tax treatment of a superannuation lump sum member benefit paid to a member having a terminal medical condition.
In accordance with subsection 303-10(1) of the ITAA 1997, a lump sum benefit, that is a superannuation member benefit paid from a complying superannuation fund, is not assessable income and is not exempt income of a person if a terminal medical condition exists in relation to the person when they receive the lump sum or within 90 days after they receive it.
A superannuation member benefit is defined in subsection 307-5(1) of the ITAA 1997, as a payment to a person from a superannuation fund because the person is a fund member.
In this case, the proceeds from the Term Deposit were paid by the Bank to the Fund because the Deceased, in their capacity as the director of the trustee of the Fund, requested the payment be made to the Fund. The payment was not made by the Fund to the Deceased because they were a member of the Fund. As such, it is not a superannuation member benefit for the purposes of section 303-10 of the ITAA 1997.
We recognise that efforts were made to wind up the Fund and pay the Deceased's benefits to the Deceased before their death however, the fact remains that the proceeds of the Term Deposit were paid into the Fund after the Deceased's death.
It should be noted that where the conditions set in the terminal medical condition provisions are not met, the Commissioner has no discretion within those provisions to treat superannuation lump sum payments as non-assessable non-exempt income.
Consequently, section 303-10 of the ITAA 1997, does not apply to the proceeds from the Term Deposit.