Edited version of your written advice

Authorisation Number: 1051360004770

Date of advice: 23 August 2018

Ruling

Subject: Death benefit payments

Question

Is the Trustee for the Fund deemed as having made the death benefit payment as soon as practicable following the death of a member in accordance with subregulation 6.21(1) of the Superannuation Industry (Supervision) Regulations 1994 (SISR)?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 201C

Year ending 30 June 201D

The scheme commences on:

1 July 201B

Relevant facts and circumstances

The Fund is a complying superannuation fund. In 201A, the trustees of the Fund were the Deceased), and their child.

The Deceased and their child were also the members of the Fund.

The Deceased passed away in 201A. There was a non-binding death nomination in the Fund in favour of the child.

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

The Deceased’s Legal Personal Representative (the LPR), was on an extended overseas holiday at the time of the Deceased’s death, and returned to Australia several weeks later.

Upon returning, the LPR, who was also the joint executor of the deceased estate, began conducting the initial steps of the estate process, including gathering information on the Deceased’s assets.

The LPR travelled interstate in 201A to meet with the child and the investment adviser for the Fund, for the purposes of better understanding of the Fund and its assets. At this meeting, the decision was made to appoint the LPR as a joint trustee of the Fund.

The Trustees of the Fund did not have all of the information they required at that time to make a fully considered decision about the payment of death benefits. Several issues, including the identity of possible eligible beneficiaries of the death benefit, and taxation aspects, required further investigation with the assistance of the Fund accountant.

In the months following the Deceased’s death, a dispute arose in relation to the estate and superannuation assets, as a result of legal action by the Deceased’s former partner. The LPR sought legal advice in relation to this challenge and was advised not to make a payment to the Estate while the legal matter remained unresolved.

The LPR was unsure whether the Deceased’s former partner may have been an eligible beneficiary of the superannuation death benefit, as their marital status at the date of death was uncertain. The LPR took the view that a payment to the Deceased’s partner would not be appropriate.

The legal dispute was finalised in 201B, with a settlement payment of a death benefit to the estate.

After the conclusion of the legal dispute, the child suffered from a depressive illness and was unable to attend to the winding up of the Fund. You state that the child ‘disappeared’ during this time and could not be located, and the LPR engaged the services of a private investigator in an attempt to track them down.

The LPR did not have the authority to pay a death benefit without the concurrence of the other Trustee of the Fund, resulting in the continued delay of payment of the death benefit following the settlement of the Estate legal dispute

The trustees have now issued written instructions to have the Fund wound up.

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)

Explanatory Statement to the Income Tax Assessment Amendment (Superannuation Measures No. 1) Regulation 2013

Reasons for decision

Sections 295-385 and 295-390 of the Income Tax Assessment Act 1997 (ITAA 1997) provide an income tax exemption for the income of a complying superannuation fund that is supporting current liabilities of superannuation income stream benefits payable by the fund at the particular time.

The term superannuation income stream benefit is defined by the ITAA 1997 with reference with regulation 995-1.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997).

From the 2012-13 income year, subregulations 995-1.01(2) to (5) expand the meaning of superannuation income stream benefit to continue the ECPI exemption in the period from the member’s death until the member’s benefits are cashed as a lump sum and/or by commencing a new income stream (subject to the benefits being cashed as soon as practicable).

Section 295-385 of the ITAA 1997 states that the superannuation income stream benefit must be a prescribed benefit. From the 2012-13 income year, regulation 295-385.01 of the ITAR 1997 makes such payments prescribed payments for the purposes of section 295-385 of the ITAA 1997.

The effect of the expanded meaning is that where a complying super fund member was receiving a superannuation income stream immediately before their death, and it did not automatically revert to another person on that member’s death, an amount paid as a superannuation death benefit lump sum using only the amount supporting the deceased’s income stream, or is applied to commence a new superannuation income stream, is taken to be a superannuation income stream benefit payable by the fund for a specified period.

The specified period is from the death of the member until as soon as it was practicable to pay the lump sum or commence the new superannuation income stream.

That is, where a fund member who was receiving a superannuation income stream benefit has died, the superannuation fund will continue to be entitled to the earnings tax exemption in the period from the member’s death until their benefits are cashed by paying them out as a lump sum and/or by commencing a new superannuation income stream (as long as the benefits are cashed as soon as practicable).

As soon as practicable

The term ‘as soon as practicable’ is not a defined term and can be determined from the facts of each case. We would not use timeframes such as those mentioned in subsection 307-5(3), (3A) and (3B) to determine the time period in which the ECPI exemption applies. Under subsection 6.21(1) of the SISR a death benefit should be paid as soon as practicable after the member dies.

The winding up of an estate following the death of a member could take a significant amount of time, for example determining appropriate beneficiaries, legal disputes, beneficiaries being overseas or otherwise not contactable, or further advice being required especially in the case of a minor.

If the facts of the case resulted in the payment being delayed and the fund can demonstrate that the benefits were cashed as soon as practicable after the member’s death upon resolution of those issues, the ECPI exemption could apply to the period from 1 July 2012 until the date of payment.

From the information provided, the date of death of the member was during 201A. Shortly after their death, a legal dispute arose between the deceased’s de facto spouse and the child of the deceased. This dispute continued until 201B, when a settlement payment of a death benefit was made to the estate.

After this time, the child of the deceased, acting as trustee of the estate, suffered from a depressive illness, which lasted until approximately 201D. During this time, the other trustee of the Fund (the LPR) could not locate the child of the Deceased, and was forced to engage the services of a private investigator. The LPR did not have the authority to pay a death benefit without the concurrence of the child, resulting in the continued delay of payment of the death benefit following the settlement of the Estate legal dispute

In conclusion, given the circumstances following the Deceased Member’s death, the payments in this case may be considered as having 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 payments made by the Fund following the Deceased Member’s death will be taken to be superannuation income stream benefits for the purposes of claiming ECPI under subdivision 295-F of the ITAA 1997.