Edited version of private advice

Authorisation Number: 1051972260448

Date of advice: 13 April 2022

Ruling

Subject: Superannuation benefit.

Question.1

Were the payments from the superannuation funds superannuation member benefits under subsection 307-5(2) of the Income Tax Assessment Act 1997?

Answer

Yes.

Question.2

Does the Trustee of the deceased estate have any Pay As You Go (PAYG) withholding obligations when making a distribution of these benefits out of the deceased's bank account that form part of the estate to any beneficiaries?

Answer

No.

This ruling applies for the following period:

Income year ended 30 June 2019

The scheme commences on:

1 July 2018

Relevant facts and circumstances

The taxpayer was a member of two superannuation funds (the Funds).

The Funds are APRA regulated funds.

In the 2018-19 income year the taxpayer applied to withdraw all of their superannuation entitlements in the Funds that comprised of tax-free component and taxable-component-taxed element.

The taxpayer was over 60 years of age at the time he applied for the withdrawal of his superannuation benefits.

The withdrawal claim was approved and processed several days later, and the relevant superannuation accounts were closed.

The Funds made a payment to the taxpayer's bank account, as nominated by the member in the withdrawal form submitted. The payment comprised the taxpayer's entire superannuation benefits within the Fund.

One of the superannuation benefits was paid to the taxpayer's nominated account one week after his passing.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 307-5(1)

Income Tax Assessment Act 1997 Subsection 307-5(2)

Superannuation Industry (Supervision) Regulations 1994 Regulation 6.20

Reasons for decision

Summary

The payments made by the Funds to the taxpayer's nominated bank account are superannuation member benefits paid by the Funds to the taxpayer. Upon receipt by the taxpayer, these payments lose their character of superannuation member benefits and simply become money which is part of the deceased's estate to be distributed to the deceased's beneficiaries in accordance with the deceased wishes.

The trustee of the deceased estate does not have any PAYG withholding obligations in respect of these benefits as the taxpayer was over 60 years of age when these were withdrawn from the taxpayer's Funds, which means that these benefits represent non assessable and not exempt income.

Detailed reasoning

Question.1

When a superannuation fund makes a payment of their member's entitlements in the fund it will be assessed depending on the characteristics of the payment.

Subsection 307-5(1) of the ITAA 1997 defines the term superannuation benefit as being a payment described in the table appearing in the subsection. Item 1 of the table relevantly defines a 'superannuation fund payment' and states:

Subsection 307-5(2) of the ITAA 1997 further clarifies that a payment described in column 2 of the table in subsection 307-5(1) of the ITAA 1997 is a superannuation member benefit.

Based on the facts of this case, the trustees of the APRA regulated funds, received a request from the taxpayer for the payment of his entire superannuation interest as a lump sum prior to his death. The Fund trustees processed the request in accordance with Superannuation Industry (Supervision) Regulations 1994 regulation 6.20.

Each of the Funds' trustees made the payments to the taxpayer in accordance with his directions that were initiated prior to his death. The payments were made by each of the superannuation funds to the taxpayer because he was a fund member.

The payments are therefore superannuation member benefits.

Question.2

Obligations relating to PAYG withholding are outlined at Part 2-5 in Schedule 1 to the Taxation Administration Act 1953 (TAA).

Subsection 10-5(1) in Schedule 1 to the TAA states that payments and other transactions covered by PAYG withholding are called withholding payments and lists the withholding payments that are covered by PAYG withholding. The obligation to withhold an amount is imposed on the entity making the withholding payment (except for certain items).

Section 301-10 of the ITAA 1997 states that where the member is 60 years or older at the time, he/she receives the superannuation benefits, these are not assessable income and not exempt income.

As the taxpayer was over 60 years of age at the time these benefits were paid to his nominated account, these are tax free as they represent non assessable and not exempt income. When received by the taxpayer and/or his estate, these payments lose their character of superannuation member benefits and simply become money which is part of the deceased's estate to be distributed to the deceased's beneficiaries in accordance with the deceased wishes.