Edited version of private advice

Authorisation Number: 1052255851137

Date of advice: 6 June 2024

Ruling

Subject: Superannuation death benefit

Question

Will the payment of a superannuation death benefit of the Deceased to the Trustee of the 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:

Year ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

The Deceased passed away in April 20XX.

The Deceased held two superannuation policies with their superannuation fund (the Fund).

The Deceased had a spouse at the time of passing.

The Deceased's last Will and Testament provided that it if the Deceased's spouse survive the Deceased for a period of 30 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 had a non-binding nomination listing the Deceased spouse as the beneficiary for one of their Fund's policies.,

The Deceased held another policy with the Fund with no beneficiary listed.

The Deceased's superannuation policies were in the process of being paid to the Deceased's spouse when the Deceased's spouse passed away in XX XXXX 20XX.

The Trustee of the Fund advised the Executor of the Deceased's Estate that they were still determining who was entitled to receive the superannuation balance of the Deceased in relation to one policy.

The balance of the superannuation policies with the Fund for the Deceased's Estate was released in XXXX and XXXXX 20XX

The Deceased's spouse children (the final beneficiaries) are not death benefit dependants.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 302-10(1)

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

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

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

Reasons for decision

Meaning of death benefits dependant

Division 302 of the ITAA 1997 sets out the taxation arrangements that apply to the payment of superannuation death benefits. These arrangements depend on whether the person that receives the superannuation death benefit is a dependant of the deceased and whether the amount is paid as a lump sum superannuation death benefit or a superannuation income stream death benefit.

A superannuation death benefit is defined in item 1 of subsection 307-5(1) of the ITAA 1997 as:

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

Subsection 995-1(1) of the 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 as follows:

A death benefits dependant, of a person who has died, is

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 was a death benefit dependant under paragraph 302-195(1)(a) of the ITAA 1997 at the time of the Deceased's death.

Tax benefit where superannuation death benefit paid to trustee of deceased estate

The superannuation death benefit was paid to the Trustee of the Deceased Estate.

The tax treatment of superannuation death benefit payments in the hands of the trustee of a deceased estate is outlined in 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 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 the potential beneficiaries of the estate are 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 they 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.

The final beneficiaries of the Deceased's superannuation death benefit are not death benefits dependants.

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