Edited version of private advice

Authorisation Number: 1052122053785

Date of advice: 29 June 2023

Ruling

Subject: Superannuation death benefit

Question 1:

Will the payment of the superannuation death benefit of the Deceased to the Trustee of her Deceased Estate be treated as if it had been paid to a death benefits dependant under subsection 302-10(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer:

No

This ruling applies for the following period

Income year ending 30 June 2023

The scheme commenced on:

1 July 2022

Relevant facts and circumstances:

The Deceased passed away in September 2019.

The Deceased was a member of a complying superannuation fund (the Fund).

The Deceased's spouse was the reversionary beneficiary of the Deceased's superannuation pension account with the Fund.

The Deceased's Last Will and Testament provided that if the Deceased's spouse survive the Deceased for a period of thirty days then but not otherwise the Deceased would leave the whole of their real and personal estate of whatsoever nature and wheresoever situate to the Deceased's spouse absolutely.

The Deceased's spouse's own health had been poor for some time prior to the Deceased's passing and deteriorated further as a result of the Deceased's death with them spending more time in hospital in early 2022.

Due to the Deceased spouse's age and ailing health, they did not apply for probate for the Deceased's Estate to transfer the assets into their name.

The Deceased's spouse passed away in May 2022.

The Deceased's superannuation pension had not been administered to revert to the Deceased's spouse or to be paid out to them.

In order to administer the Deceased's spouse's estate, the assets the Deceased's spouse inherited from the Deceased which remained in the Deceased's name at the time of the Deceased's spouse's passing, had to be transferred to the Estate of the Deceased's spouse.

In November 2022, probate for the Deceased's estate was granted.

In December 2022, you as the Administrator of the Deceased's estate lodged documentation to the Fund requesting that the death benefit payment from the Fund be transferred directly to the Deceased's estate.

The balance of the Deceased's superannuation pension account with the Fund for the Deceased's estate was released by the Fund and paid to the Deceased's spouse's estate in January 2023 to be dealt with in accordance with the Deceased's spouse's Will.

In January 2023, the Deceased's estate received a death benefit payment from their employer.

You provided us with a PAYG summary for the year ending 30 June 2023 regarding the death benefit payment stating that no tax was withheld.

As the Deceased's spouse survived the Deceased by more than 30 days, all of the distributions from the Deceased's estate were payable to the Deceased's spouse's estate, including the superannuation death benefit.

The beneficiaries of the Deceased's spouse's estate are the Deceased's spouse's adult children and grandchildren.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 302-10

Income Tax Assessment Act 1997 Subsection 302-10(2)

Income Tax Assessment Act 1997 Section 302-10(3)

Income Tax Assessment Act 1997 Section 302-145

Income Tax Assessment Act 1997 Section 302-195

Income Tax Assessment Act 1997 Subsection 302-195(1)

Income Tax Assessment Act 1997 Section 995-1

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

Reasons for decision:

Meaning of a death benefits dependant

Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that the term 'death benefits dependant' has the meaning given by section 302-195 of the ITAA 1997.

Subsection 302-195(1) of the ITAA 1997 defines a 'death benefits dependant' of a person who has died as:

(a)  the deceased person's spouse or former spouse; or

(b)  the deceased person's child, aged less than 18; or

(c)   any other person with whom the deceased person had an interdependency relationship under section 302-200 just before he or she died; or

(d)  any other person who was a dependant of the deceased person just before he or she died.

The Deceased's spouse, as the spouse of the Deceased, was a death benefits dependant under paragraph 302-195(1)(a) of the ITAA 1997 at the time of the Deceased's death.

Tax treatment where superannuation death benefit is paid to the trustee of the deceased estate

A superannuation death benefit payment was made to the Trustee of the Deceased's Estate.

The tax treatment of superannuation death benefits payments to a trustee of a deceased estate is outlined under section 302-10 of the ITAA 1997:

(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.

Although the Deceased's spouse was a death benefits dependant, the concessional tax treatment afforded by subsection 302-10(2) of the ITAA 1997 is reliant upon the superannuation death benefit being received or expected to be received by a death benefit dependant.

Ordinarily, the requirement to ascertain whether a death benefit dependant may be expected to benefit from a superannuation death benefit arises when the trustee of the deceased estate is required to lodge an income tax return for the estate after the superannuation benefit has been received by the estate but before the assets can be distributed to the beneficiaries. The provision allows the trustee to make a determination that the death benefit will be tax free to the extent that a death benefit beneficiary will receive it once the estate assets can be distributed.

To determine whether the concessional tax treatment under subsection 302-10(2) of the ITAA 1997 will apply to the Deceased's superannuation death benefit as paid into the Deceased's spouse's estate, there must be an expectation that a death benefit dependant will benefit from the superannuation death benefit. This requires that we adopt a look-through approach to consider relevant factors including, who are the potential beneficiaries of the estate and when the beneficiary will receive the death benefit.

Subsection 302-10(2) of the ITAA 1997 refers to death benefit dependants who 'have benefited, or may be expected to benefit, from the superannuation death benefit'. The use of the phrase 'may be expected to benefit' connotes something that is less than absolute certainty. The death benefit dependant in question does not have to have already benefited from the death benefit, it is enough that they can reasonably be expected to benefit.

However, for subsection 302-10(2) of the ITAA 1997, to apply, there needs to be a reasonable expectation that the superannuation death benefit will be received by a death benefits dependant.

Additionally, although death benefits dependancy is assessed at the time of the deceased's death, this is not necessarily applicable to the determination of who has benefited or is expected to benefit from a superannuation death benefit.

In this case, it would be reasonable to conclude that the Deceased's spouse has not benefited, nor can he be expected to benefit, from the superannuation death benefit of the Deceased, as they passed away before it was paid.

Conclusion

Although the Deceased's spouse was a death benefits dependant of the Deceased at the time of their death, they have not benefitted nor is expected to benefit from the superannuation death benefit, as they had already passed away.

Thus, the applicable provision to determine the tax treatment of the superannuation death benefit is subsection 302-10(3) of the ITAA 1997.