Edited version of private advice

Authorisation Number: 1051556580076

Date of advice: 24 October 2019

Ruling

Subject: Death benefits

Question

Is the superannuation lump sum received by the Deceased's estate considered to be a terminal illness payment under section 303-10 of the Income Tax Assessment Act 1997?

Answer

No

This ruling applies for the following period:

Year ending 30 June 2018

The scheme commences on:

1 July 2017

Relevant facts and circumstances

The Deceased died during the relevant income year after suffering from a terminal illness.

The Deceased held an account with four Australian complying superannuation funds (collectively, the Funds)

The Deceased applied to the Funds for early release of their super benefits on the grounds of terminal illness. These applications were supported by medical certificates attesting that the Deceased had a 50% chance of surviving 2 years.

Due to administrative errors with the application forms, the applications were initially rejected. The Deceased subsequently lodged the forms with the correct documentation; however, they passed away before the payments were made.

The payments were then treated as death benefits instead of a terminal illness benefits.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 302

Income Tax Assessment Act 1997 Section 303-10

Income Tax Assessment Act 1997 Section 307-5

Income Tax Assessment Act 1997 Section 307-65

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

Income Tax Assessment Regulations 1997 Regulation 303-10.01

Reasons for decision

Summary

The payments made by the Funds to the Deceased's estate are not considered to be superannuation lump sum member benefits paid to a member having a terminal medical condition.

The lump sums are considered to be superannuation death benefits and are subject to the taxation arrangements that apply to the payment of superannuation death benefits under Division 302 of the ITAA 1997.

Detailed reasoning

Terminal illness payment

Section 303-10 of the ITAA 1997 sets out the tax treatment of a superannuation lump sum member benefit paid to members having a terminal medical condition. Section 303-10 of the ITAA 1997states:

(1) This section applies to a *superannuation member benefit that:

(a) is a *superannuation lump sum; and

(b) is:

(i) paid from a *complying superannuation plan; or

(ii) a *superannuation guarantee payment, a *small superannuation account payment, an *unclaimed money payment, a *superannuation co-contribution benefit payment or a *superannuation annuity payment.

(2) The lump sum is not assessable income and is not exempt income if a terminal medical condition exists in relation to you when you receive the lump sum or within 90 days after you receive it.

In accordance with subsection 307-5(1) of the ITAA 1997, a superannuation member benefit is a payment to a person from a superannuation fund because the person is a fund member.

A superannuation lump sum is defined in section 307-65 of the ITAA 1997 as a superannuation benefit that is not a superannuation income stream benefit.

Subsection 995-1(1) of the ITAA 1997 defines 'terminal medical condition' to have the meaning given by the regulations.

In accordance with regulation 303-10.01 of the ITAR 1997, a terminal medical condition exists in relation to a person at a particular time if:

(a) two registered medical practitioners have certified, jointly or separately, that the person suffers from an illness, or has incurred an injury, that is likely to result in the death of the person within a period (the certification period) that ends not more than 12 months after the date of the certification;

(b) at least one of the registered medical practitioners is a specialist practising in an area related to the illness or injury suffered by the person;

(c) for each of the certificates, the certification period has not ended.

In this case, more than two registered medical practitioners (one of whom is a specialist practicing in the area related to the Deceased's illness) certified that the Deceased suffered from an illness likely to result in the death of the Deceased within twelve months after the date of the certification.

It is likely that, had they not immediately passed away, the Deceased would have met all the conditions to receive her entitlements as terminal medical condition payments.

However, the lump sums were not received directly by the Deceased, but rather were paid into their estate after their death. It cannot be said that the lump sums were received by the Deceased as a consequence of her terminal medical condition.

Payments from three of the four Funds were received between six months and twelve months after the Deceased's death. There is nothing to indicate that the Funds had ever considered the Deceased's application under the terminal medical condition, or intended to make the payments under that condition.

Furthermore, it can be said that at the time the payments were made the Deceased was not suffering from a terminal medical condition as they had already passed away.

Superannuation death benefit

Subsection 995-1(1) of the ITAA 1997 states that a 'superannuation death benefit' has the meaning given by section 307-5 of the ITAA 1997.

A superannuation death benefit is defined in subsection 307-5(4) of the ITAA 1997 as being a payment described in Column 3 of the table in subsection 307-5(1). A superannuation death benefit is described in Column 3 of Item 1 of the table in subsection 307-5(1) as:

... A payment to you from a superannuation fund, after another person's death, because the other person was a fund member.

A superannuation death benefit must be paid as either:

·        a superannuation lump sum; or

·        a superannuation income stream.

In the current case the Deceased passed away during the relevant income year. Their benefits in the Funds were paid in the form of superannuation lump sums to their estate after that date.

It is considered that the superannuation lump sum payments received by the estate were made by the Funds after the Deceased's death because they were a member of the Funds. Accordingly, the payments are considered to be superannuation death benefits and are subject to the taxation arrangements that apply to the payment of superannuation death benefits under Division 302 of the ITAA 1997.