Is the withdrawal from the Member's superannuation fund account to the amount of $XXX,XXX.XX that was requested shortly before their death on X XX 2023 but received in a lump sum around 11 days after their death on X XX 2023, a superannuation member benefit or superannuation death benefit?
The full commutation of the Member's pension phase account was a superannuation death benefit. This ruling applies for the following periods : Income year ending 30 June 20XX The scheme commenced on: 1 July 20XX
1. The Member was 91 years old at the date of their death on X XX 20XX (the Date of Death). 2. The Member held one pension phase superannuation account with their superannuation fund (The Fund) at the time of their passing. 3. The Fund is an APRA Regulated Public Offer Fund. 4. The Member had no death benefits dependants for the purposes of the ITAA 1997. 5. On XX XX 20XX the Member signed "Withdrawal Payment or Rollover Request Form". 6. In the "Withdrawal Payment or Rollover Request Form" the Member asked for full lump sum payment (account closure) and provided the Fund with the Tax Agent's contact details. 7. One day later, the Fund sent an email to the Tax Agent advising that instructions to process the withdrawal to the Member's pension payment bank account were received and "passed on". 8. The Tax Agent received email from the Fund on XX XX 2024, some 7 months after the Date of Death, confirming the following: a) The pension payment in the amount of $XXX.XX was made to the Member 3 days before the Date of Death. b) The full Member benefit in the amount of $XXX,XXX.XX was paid to the Member 3 days before the Date of Death.
9. Member's bank statement showing the following details: a) The pension payment in the amount of $XXX.XX was received 11 days after the Date of Death. b) The full Member benefit in the amount of $ XXX,XXX.XX was received 11 days after the Date of Death. 10. ATO records show that the Fund submitted a Member account form 12 days after the Date of Death which shows that the Member's account was closed 11 days after the Date of Death. 11. On X XX 2024, the Tax Agent emailed the Superannuation Exit Statement provided by the Fund. Exit Statement is dated 22 days after the Date of Death, date of the withdrawal is: 3 days before the Date of Death 12. The Commissioner requested the evidence from the Tax Agent of the Fund's trustee knowledge at the time the payment was made; including whether they were aware that the Member has died prior the payment was received. 13. No evidence was provided that the trustee of the Fund was not aware that Member died when the payment was made.
Division 301 of the Income Tax Assessment Act 1997 Division 302 of the Income Tax Assessment Act 1997 Section 307-5 of the Income Tax Assessment Act 1997 Section 307-65 of the Income Tax Assessment Act 1997 Section 307-70 of the Income Tax Assessment Act 1997 Subsection 995-1(1) of the Income Tax Assessment Act 1997 Regulation 307-70.01 of the Income Tax Assessment (1997 Act) Regulations 2021 Regulation 307-70.02 of the Income Tax Assessment (1997 Act) Regulations 2021 Regulation 1.06 of the Superannuation Industry (Supervision) Regulations 1994 Regulation 6.12 of the Superannuation Industry (Supervision) Regulations 1994 Regulation 6.20 of the Superannuation Industry (Supervision) Regulations 1994 Regulation 6.21 of the Superannuation Industry (Supervision) Regulations 1994
Release of benefits Legislative framework 1. The Member was 91 years old at the date of their death. This meant the member had already satisfied the condition of release in Schedule 1, item 106 of the table in Part 1 of the Superannuation Industry (Supervision) Regulations 1994 (SISR) by reaching the age of 65 years. This condition of release has 'nil' cashing restrictions. Under regulation 6.12 of the SISR, the member's benefits were all converted to unrestricted non-preserved benefits upon meeting a condition of release with 'nil' cashing restrictions. Under subregulation 6.20(1) of the SISR, a member's unrestricted non-preserved benefits in a regulated superannuation fund may be voluntarily cashed at any time. As per subregulations 6.20(2) and (3) of the SISR the whole or a part of the member's unrestricted non-preserved benefits may be cashed as one or more lump sums or one or more pensions.
2. The Member's death on X XX 20XX then resulted in them meeting the condition of release in Schedule 1, item 102 of the table in Part 1 of the SISR. This condition of release also has 'nil' cashing restrictions. Under subregulation 6.21(1) of the SISR, a member's benefits in a regulated superannuation fund must be cashed as soon as practicable after the member dies. Paragraph 6.21(2)(a) dictates that benefits must be cashed as single lump sums for non-dependants; only dependants (for SISR purposes) may cash benefits in the form of a superannuation income stream in the retirement phase, as per paragraph 6.21(2)(b) and subregulations 6.21(2A) and (2B) of the SISR. Legislative framework - Taxation of benefits 3. Subsection 995-1(1) of the ITAA 1997 defines 'superannuation benefit' as having the meaning given by section 307-5. 4. Section 307-5 of the ITAA 1997 states: 5. 307-5(1) A superannuation benefit is a payment described in the table. Table 1: 307-5(1) A superannuation benefit is a payment described in the table: Types of superannuation benefits Item Column 1 Column 2 Column 3 Superannuation benefit type Superannuation member benefit 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. a. (Table truncated) 307-5(2) A superannuation member benefit is a payment described in column 2 of the table. 307-5(4) A superannuation death benefit is a payment described in column 3 of the table. 6. Section 307-70 of the ITAA 1997 defines 'superannuation income stream benefit' and 'superannuation income stream': 307-70(1) A superannuation income stream benefit is a superannuation benefit specified in the regulations that is paid from a superannuation income stream. 307-70(2) A superannuation income stream has the meaning given by the regulations. 7. The Income Tax Assessment (1997 Act) Regulations 2021 (ITAR 2021) specifies a superannuation benefit for the purposes of subsection 307-70(1) and the definition of 'superannuation income stream' for the purposes of subsection 307-70(2) and are not discussed further in this response.
8. If a superannuation benefit does not satisfy the ITAR's definitions of a superannuation income stream benefit, subsection 307-65(1) of the ITAA 1997 states: 307-65(1) A superannuation lump sum is a superannuation benefit that is not a superannuation income stream benefit (see section 307-70). Application - Taxation of benefits 9. The benefit of $XXX,XXX.XX paid from the Member's account as requested shortly before their death, but received in their bank account after their death, is a superannuation lump sum. This is a straightforward application of subsection 307-65(1) ITAA 1997. Type of superannuation benefit Legislative framework 10. The distinction between a superannuation member benefit and a superannuation death benefit is important because the tax treatment of the superannuation benefit varies according to its classification (as well as the age of the recipient and the components of the benefit).
11. The tax treatment of superannuation member benefits is set out in Division 301 of the ITAA 1997. Broadly, section 301-10 states that if a member is 60 years or over when they receive a superannuation benefit, the benefit is non-assessable and non-exempt income. This applies whether the superannuation benefit is a lump sum or an income stream benefit. (If the taxable component of the benefit has an element untaxed in the fund, the untaxed element is assessable income and either section 301-95 or 301-100 will apply depending on whether the benefit is a lump sum or an income stream benefit.) 12. The tax treatment of superannuation death benefits is set out in Division 302 of the ITAA 1997. Subdivision 302-B applies where the recipient is a death benefits dependant of the deceased, and Subdivision 302-C applies where the recipient is not a death benefits dependant of the deceased. 13. As the Member did not have any death benefits dependants this response will not discuss Subdivision 302-B further. 14. Regarding a superannuation lump sum that a person receives because of the death of another person of whom they are not a death benefits dependant:
a. section 302-140 states that the tax-free component is non-assessable and non-exempt income; b. subsection 302-145(1) states that the taxable component is assessable income. However, subsection 302-145(2) entitles the recipient to a tax offset to ensure the rate of tax on the element taxed in the fund does not exceed 15%, and subsection 302-145(3) entitles the recipient to a tax offset to ensure the rate of tax on the element untaxed in the fund does not exceed 30%. Death benefit or member benefit 15. An amount that a member requested to be paid from their superannuation fund before their death, but was paid after their death, may be classified as a member benefit instead of a death benefit depending on the facts and circumstances of the payment.
16. A trustee of a regulated superannuation fund can only pay superannuation benefits according to the fund's governing rules, including the fund's trust deed and relevant legislation. These governing rules set out when benefits can be paid and who they can be paid to, including after a member's death. A superannuation fund's governing rules must be read carefully to determine a member's benefit entitlements in the event of death. 17. The trustee of the superannuation fund must assess whether the amount that the member requested to be paid is a member benefit or a death benefit based on the facts known at the time of the payment, including: c. the terms of the member's request; d. the terms of the trust deed and any other governing rules; e. the fund trustee's knowledge at the time that the payment is made (including whether they are aware that the member has died); f. the entity that the payment is being paid to; g. the circumstances and timing of the payment; and h. whether the payment is made because of and consistent with the member's request. Lump sum benefit of $XXX,XXX,XX from pension phase account requested shortly before Member's death on X XX 2023
18. At the time the Member submitted the payment request, the Member had already satisfied a 'nil' condition of release (attaining the age of 65 years) and their superannuation benefits had been converted to unrestricted non-preserved benefits. They were thus entitled to: i. voluntarily cash their benefits at any time (consistent with subregulation 6.20(1) of the SISR); j. cash the whole or a part of their benefits (consistent with subregulation 6.20(2) of the SISR); and k. cash the benefits as one or more lump sums (paragraph 6.20(3)(a) of the SISR) or one or more pensions (paragraph 6.20(3)(b) of the SISR). 19. As per QC 24759 on the website ato.gov.au, a superannuation fund is "required to report all member account phases and attributes within 5 business days using the member account attribute service (MAAS)". 20. The SISR also permitted the release of superannuation benefits when the Member met the 'nil' condition of release of death. Subregulation 6.21(1) of the SISR states that a member's benefits in a regulated superannuation fund must be cashed as soon as practicable after the member dies.
21. Considering the facts, at the time of the payment of the lump sum benefit: a. We assume that the benefit was paid in accordance with the superannuation fund's trust deed and other governing rules. b. The lump sum benefit was paid to the Member's personal bank account in accordance with a valid request made by the Member prior to his death. c. No evidence was provided to explain the 14 days delay of the lump sum payment date that is showing in documents submitted from the Fund and the actual payment date shown in the Member's bank statement. d. The date the Fund reported to the ATO that the account was closed does match the date the amount was received in the Member's bank account so we can only conclude that was the date the benefit was paid, and account closed. e. Given the time that elapsed between the Member dying and the benefit being received in the Member's bank account, we can only determine it to be a death benefit without any further evidence. 1. Accordingly, it is reasonable to treat the total superannuation lump sum benefit of $XXX,XXX.XX as a superannuation death benefit. The tax treatment in Division 302
of the ITAA 1997 should apply to the benefit.