1 Was the initial payment from the fund a superannuation member benefit under section 307-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Yes. Question 2 Was the second payment of $XXXX from the fund a superannuation death benefit under subsection 307-5(4) of the ITAA 1997, with regard to any pay as you go (PAYG) withholding obligations in accordance with section 12-85 of Schedule 1 to the Taxation Administration Act 1953 (TAA)? Answer Yes. This ruling applies for the following period : Income year ended 30 June 20XX The scheme commences on: 1 July 20XX
This private ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are different from these facts, this private ruling has no effect, and you cannot rely on it. The fact sheet has more information about relying on your private ruling. • The deceased was a member of the fund. • The deceased granted an Enduring Power of Attorney to her daughter. • The day before the deceased passed away, her attorney submitted an application to the fund (signed by the daughter), requesting the withdrawal of all the deceased's entitlements in the fund and the closure of her account. The reason for the withdrawal as stated on the completed form was 'age 65 or over'. • The deceased was XX years old at the time of death. • The fund processed the deceased's application and the benefits were credited to the deceased's bank account as a member benefit. • On a later date, the fund issued a PAYG Payment Summary - superannuation lump sum to the deceased's estate confirming a second lump sum payment was paid as a death benefit.
• The fund issued a letter to the deceased's estate acknowledging receipt of the additional documentation requested to process the withdrawal of the deceased's remaining investment and advising that the investment had been fully withdrawn and paid into the bank account of the deceased estate.
Income Tax Assessment Act 1997 section 301-10 Income Tax Assessment Act 1997 section 302-10 Income Tax Assessment Act 1997 section 307-5 Superannuation Industry (Supervision) Regulations 1994 Regulation 6.20
Question 1 When a superannuation fund makes a payment of member's entitlements, the benefit will be assessed depending on the characteristics of the payment. Subsection 307-5(1) of the ITAA 1997 defines the term superannuation benefit as being a payment described in the table appearing in the subsection. Item 1 of the table relevantly defines a 'superannuation fund payment' and states: Table 1: Types of superannuation benefits Item Column 1 Superannuation benefit type Column 2 Superannuation member benefit Column 3 Superannuation death benefit 1 superannuation fund payment A payment to you from a superannuation fund because you are a fund member. A payment to you from a superannuation fund, after another person's death, because the other person was a fund member. Subsection 307-5(2) of the ITAA 1997 further clarifies that a payment described in column 2 of the table in subsection 307-5(1) is a superannuation member benefit. Based on the facts of this case, the trustee of the fund, received an application from the deceased for the payment of her entire superannuation interest, prior to her death. The fund trustee processed the application in accordance with regulation 6.20 of the
Superannuation Industry (Supervision) Regulations 1994 , on the basis that the member met a condition of release for being 65 years of age, albeit not knowing the member had passed away after making the application. The initial benefit payment was made to the deceased's bank account as a member benefit and will maintain its character in this particular circumstance. Monies within the bank account will then subsequently form part of the deceased estate. The payment no longer has the character of a superannuation member benefit and simply becomes money of the deceased estate to be distributed to beneficiaries in accordance with the deceased's wishes. Section 301-10 of the ITAA 1997 states that where the member is 60 years or older at the time they receive their superannuation benefit, the benefit is not assessable and not exempt income. Question 2 Subsection 307-5(4) of the ITAA 1997 further clarifies that a payment described in column 3 of the table in subsection 307-5(1) of the ITAA 1997 is a superannuation death benefit.
As outlined above, the trustee of the fund received an application from the deceased, prior to death, for the payment of her entire superannuation interest. A majority of the benefit was paid out as a member benefit. Prior to paying out the remaining benefit from the member's account, the trustee became aware that the member had passed away. The fund trustee accordingly made the payment to the deceased estate and noted the payment as a superannuation death benefit in the corresponding lump sum PAYG payment summary. The second payment is therefore a superannuation death benefit. Under section 302-10 of the ITAA 1997, the taxation arrangements for superannuation death benefits paid to a trustee of a deceased estate are determined in accordance with the taxation arrangements that would otherwise apply to the person or persons otherwise intended to benefit from the estate.
Subsequently, it is the responsibility of the legal personal representative to withhold any superannuation death benefits tax from the deceased estate before it is distributed. Where death benefits are paid by the estate to a 'death benefits dependant', no tax will be payable. If, however, any part of the superannuation death benefit is payable under the will or on intestacy to a beneficiary who does not fall within that definition, the legal personal representative will be responsible for withholding tax from the superannuation death benefit in accordance with section 12-85 of Schedule 1 to the TAA.