Payment of Superannuation Benefit to Dependant

Is a superannuation payment paid to a trust, for a dependant who is an individual, a death benefit for the purposes of subsection 27AAA(4) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Yes. The payment is a death benefit in accordance with subsection 27AAA(4) of the ITAA 1936, notwithstanding the fact that the payment is made to the trust rather than directly to the dependant.

A payment on death is to be paid from a superannuation fund to a trust established for the dependant of the deceased. The dependant is the only beneficiary of the trust. In accordance with the trust deed, 'the Trustee shall stand possessed of the Trust Fund and the income thereof in trust for the Primary Beneficiary absolutely or if the Primary Beneficiary is deceased then the Trust Fund shall form part of the estate of the Primary Beneficiary'.

To determine if the payment is a death benefit in accordance in subsection 27AAA(4) of the ITAA 1936, it is necessary to determine if the payment has been made to the dependant, notwithstanding the existence of the trust.

If a superannuation payment is made to a trustee, it is an Eligible Termination Payment (ETP), however its 'death benefit' tax concession is generally lost. However, the Australian Taxation Office (ATO) considers that a payment made direct to the trustee of a trust set up to benefit dependants of a deceased person will be death benefits.

This decision was reached by reference to section 15AA of the Acts Interpretation Act 1901 , which provides that a construction that would promote the underlying purpose of the object of the Act (whether the object is expressly stated or not) must be preferred.

Provided the benefit is paid to or for the benefit of dependants of the deceased person, it will be exempt from tax. This appears to be a clear indication of the intent of both the legislators and the government in regards to the treatment of such payments. The fact that a payment is made directly to the trustee, rather than to the dependant, should not obscure the fact that the payment is ultimately for the benefit of the dependant.

As the taxpayer has an absolute entitlement to the income, is the sole beneficiary and any income on death would form part of the dependant's estate, the payment to the trust is ultimately for the benefit of the dependant. The payment is a death benefit for the purposes of subsection 27AAA(4) of the ITAA 1936.