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Edited version of your written advice
Authorisation Number: 1051361724539
Date of advice: 24 April 2018
Ruling
Subject: Death Benefit Taxation
Question 1
Are the payments made to the taxpayer as the non-dependant beneficiary, a Death Benefit with the correct tax withheld?
Answer
Yes
Question 2
Is the distribution following consent orders given to the taxpayer and another individual, a Death Benefit?
Answer
No
This ruling applies for the following periods:
Income year 2016
The scheme commences on:
1 July 2015
Relevant facts and circumstances
The taxpayer was trustee for the estate of the deceased.
The taxpayer was also a non-dependant beneficiary of a super death benefit.
A death benefit payment was paid to the taxpayer’s lawyers on behalf of the taxpayer in the taxpayer’s personal capacity.
Bank statements provided shows that taxpayer received two superannuation death benefit lump sum payments from the deceased’s fund.
Consent orders were given for amounts to be paid from a notional estate to the taxpayer and another individual.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 995-1
Income Tax Assessment Act 1997 Section 302-5
Income Tax Assessment Act 1997 Section 302-140.
Income Tax Assessment Act 1997 Subsection 302-145
Income Tax Assessment Act 1997 Section 307-5
Income Tax Assessment Act 1997 Section 307-15
Reasons for decision
Question 1
Summary
Payments made to the taxpayer, a non-dependent beneficiary of the deceased, was a death benefit as defined in section 307-5 of the ITAA 1997. Tax was correctly withheld from these payments
Detailed reasoning
Death benefits to a non-dependant:
In this case as the beneficiary of the deceased is a non-dependant beneficiary, the superannuation benefits will be taxed as explained below.
Column 3 in the table in section 307-5 states that a superannuation death benefit includes a payment to you from a superannuation fund, after another person's death, because the other person was a fund member.
A death benefit was paid to the taxpayer as a non-dependant beneficiary and tax was withheld in accordance with the requirements in section 302-145 of the ITAA 1997. The amount was received on the taxpayer’s behalf by the estate’s lawyers, as the taxpayer’s legal representative.
Subsection 307-15(1) of the ITAA 1997 states:
This section applies for the purposes of:
(a) determining whether a payment is a superannuation benefit; and
(b) determining whether a *superannuation benefit is made to you, or received by you.
307-15(2) |
A payment is treated as being made to you, or received by you, if it is made:
(a) for your benefit; or
(b) to another person or to an entity at your direction or request.
Even though the estate’s lawyers received the amount on the taxpayer’s behalf, for taxation purposes this amount is still considered to be received by the taxpayer.
The tax free component of a superannuation lump sum paid to a non-dependant is tax free under section 302-140 of the ITAA 1997. The taxable component of the lump sum is included in assessable income; with a tax offset to ensure that the rate of tax on the element taxed in the Fund does not exceed 15% and that the rate of tax on the element untaxed in the Fund does not exceed 30%. This is in accordance with section 302-145 of the ITAA 1997. No Medicare levy is added to the rates mentioned above.
Question 2
Summary
The payment made to the taxpayer, as per consent orders of the court, is not a death benefit as defined in section 302-5 of the ITAA 1997, as it was merely a distribution of amounts which formed the corpus of a notional estate.
Detailed reasoning
At the taxpayer’s instruction, an amount was forwarded to a trust account of a notional estate after the death benefit was paid and tax was collected.
Section 302-10 of the ITAA 1997 applies to death benefit payments paid from a superannuation fund to a deceased estate. It states:
(1) This section applies to you if:
(a) you are the trustee of a deceased estate; and
(b) you receive a * superannuation death benefit in your capacity as trustee.
(2) To the extent that 1 or more beneficiaries of the estate who were * death benefits dependants of the deceased have benefited, or may be expected to benefit, from the * superannuation death benefit:
(a) the benefit is treated as if it had been paid to you as a person who was a death benefits dependant of the deceased; and
(b) the benefit is taken to be income to which no beneficiary is presently entitled.
(3) To the extent that 1 or more beneficiaries of the estate who were not * death benefits dependants of the deceased have benefited, or may be expected to benefit, from the * superannuation death benefit:
(a) the benefit is treated as if it had been paid to you as a person who was not a death benefits dependant of the deceased; and
(b) the benefit is taken to be income to which no beneficiary is presently entitled.
As the superannuation death benefit was not paid to the taxpayer in the taxpayer’s personal capacity as trustee of a deceased estate, this section does not apply. Any distribution which followed on from the court proceedings is separate from the original death benefit received by the taxpayer.