Payment of a death benefit eligible termination payment (ETP) to a non-dependant beneficiary

Is a death benefit eligible termination payment (ETP) paid from a superannuation fund to a non-dependant beneficiary included in the beneficiary's assessable income?

Yes. A death benefit ETP paid from a superannuation fund to a non-dependant beneficiary is included in the beneficiary's assessable income.

The taxpayer received a death benefit ETP directly from the deceased member's superannuation fund.

The taxpayer was a non-dependant beneficiary.

A 'death benefit ETP' is determined with reference to section 27AAA of the Income Tax Assessment Act 1936 (ITAA 1936), and includes an ETP that is paid on the death of a person to a dependant or the legal personal representative of the deceased person or to any other person (for example a non-dependant beneficiary).

The definition of 'eligible termination payment' in section 27A of the ITAA 1936 includes under paragraph (ba) a payment made directly from a deceased member's superannuation fund to a beneficiary.

Section 27AAA of the ITAA 1936 determines the tax treatment of a death benefit ETP. The tax treatment depends on whether the payment is made to a dependant or non-dependant beneficiary.

A death benefit ETP paid to a non-dependant beneficiary is taxed as an ETP. It is included as assessable income in the tax return of the recipient for the year of income in which the payment was made, in accordance with sections 27B and 27C of the ITAA 1936.

A tax offset applies to the retained amount of the post-June 83 component in accordance with section 159SA of the ITAA 1936 so that the effective maximum rate of tax on that component is 15% for the taxed element and 30% for the untaxed element.