Edited version of private advice

Authorisation Number: 1052292018496

Date of advice: 16 August 2024

Ruling

Subject: Superannuation death benefits

Question 1

Does section 302-10 of the Income Tax Assessment Act 1997 apply to the superannuation death benefit paid to the Trustee for B by the Superannuation Fund?

Answer

Yes.

This ruling applies for the following period:

Income year ending 30 June 2024

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

1.      B died in 20XX

2.      B was the sole member of the Superannuation Fund. The Superannuation Fund is a complying fund.

3.      B had a binding death benefits nomination which directed the trustee of the Superannuation Fund to pay the superannuation benefits to B's legal personal representative (the Estate).

4.      The Superannuation Fund has paid the lump sum death benefits payment to the Estate.

5.      Probate has been granted, and the Estate is being administered in accordance with B's will.

6.      B's will specifies that the superannuation death benefit is to be paid to a charity.

7.      The superannuation death benefit has a taxable component.

Relevant legislative provisions

Division 302 of the Income Tax Assessment Act 1997

Section 302-10 of the Income Tax Assessment Act 1997

Subdivision 302-C of the Income Tax Assessment Act 1997

Section 302-145 of the Income Tax Assessment Act 1997

Section 302-195 of the Income Tax Assessment Act 1997

Reasons for decision

Division 302 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the tax treatment of superannuation death benefits that are paid from a complying superannuation plan. Section 302-10 of the ITAA 1997 deals with superannuation death benefits paid to the trustee of a deceased estate. Subsection 302-10(1) of the ITAA 1997 states that 'the section applies to you if you are the trustee of a deceased estate, and you receive a superannuation death benefit in your capacity as trustee'.

The tax treatment of a superannuation death benefit under section 302-10 of the ITAA 1997 depends on whether the beneficiary of the estate that benefits, or is expected to benefit, from the superannuation death benefit is a death benefits dependant (subsections 302-10(2) and (3) of the ITAA 1997).

The meaning of death benefits dependant is provided in section 302-195 of the ITAA 1997 which states that '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'.

B's will specifies that the amount received from the Superannuation Fund is to be applied by the trustee of the Estate in the making of a testamentary gift to the Charity. The Charity is not a death benefits dependant under section 302-195 of the ITAA 1997.

Relevantly, subsection 302-10(3) of the ITAA 1997 states that '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'.

Subdivision 302-C of the ITAA 1997 sets out the tax treatment of a superannuation lump sum death benefit paid to a non-dependant of the deceased.

Subsection 302-145(1) of the ITAA 1997 states that 'if you receive a superannuation lump sum because of the death of a person of whom you are not a death benefits dependant, the taxable component of the lump sum is assessable income.

Subsection 302-145(2) of the ITAA 1997 states that 'you are entitled to a tax offset that ensures that the rate of income tax on the element taxed in the fund of the lump sum does not exceed 15%'.

Subsection 302-145(3) of the ITAA 1997 states that 'you are entitled to a tax offset that ensures that the rate of income tax on the element untaxed in the fund of the lump sum does not exceed 30%'.

Section 302-10 of the ITAA 1997 does apply to the superannuation death benefit paid by the Superannuation Fund to the Estate. As no beneficiary is presently entitled to the superannuation death benefit paid to the Estate (paragraph 302-10(3)(b) of the ITAA 1997), the death benefit is taxed in the hands of the Estate. The Estate will be required to pay tax on the taxable component in accordance with section 302-145 of the ITAA 1997.

It is also to be noted that Subsection 30-15(2) of the ITAA 1997 states that a testamentary gift or contribution is not deductible under the gift deduction rules in Division 30 of the ITAA 1997.