Issue
Where the benefits of a deceased member of a self-managed superannuation fund are to be paid as a death benefit to the taxpayer, does regulation 6.21 of the Superannuation Industry (Supervision) Regulations 1994 (SISR) allow the benefit to be transferred to the taxpayer's member account by way of journal entries in the books of the fund?
Decision
No. The death benefit must actually be paid to the taxpayer by transfer of ownership of the deceased member's assets to the taxpayer.
Facts
The taxpayer and the taxpayer's spouse are both members of the same self-managed superannuation fund.
The taxpayer's spouse dies, and the spouse's benefits are to be paid out as a death benefit to the taxpayer. The benefits of the deceased member consist of publicly listed shares and cash.
The taxpayer wishes to remain in the fund and to re-contribute the death benefit directly to their member account. In order to avoid transaction fees, the taxpayer wishes to know whether it is possible to transfer the funds from the deceased member's account to the taxpayer's own account by way of journal entry.
Reasons for Decision
Subregulation 6.21(1) of SISR provides that a member's benefits in a regulated superannuation fund (other than the member's post-65 employer-financed benefits) must be 'cashed as soon as practicable' after the death of the member.
Subregulation 6.21(2) of SISR goes on to prescribe the forms in which the benefits may be cashed for the purposes of regulation 6.21 of SISR. In this case, the benefits may be cashed in any combination of one or more lump sums, pensions and purchased annuities. For the purposes of regulation 6.21 of SISR, but excluding Schedule 1, the definition of 'lump sum' includes an asset: subregulation 6.01(2) of SISR.
The term 'cashed' is not defined in the Superannuation Industry (Supervision) Act 1993 or in the SISR. However, the use of the term within the SISR appears to suggest that in order to be 'cashed', the benefits need to be paid out of the superannuation system. SMSFD 2011/1 states that 'for the purposes of Division 6.3, 'cashing' involves a member's benefits in a fund' being 'paid'. This indicates that cashing involves an SMSF making a payment which reduces the member's benefits in the fund'. Consequently, transferring the shares and cash to the taxpayer's account from the deceased member's account via a journal entry would not amount to 'cashing' the benefits, and therefore, regulation 6.21 of SISR would not be satisfied. Note: Journal entries are also insufficient to establish that a superannuation fund has paid a superannuation death benefit for income tax purposes (see ATO ID 2015/2)