Is the lump sum in specie transfer of certain investment fund units, as detailed under relevant facts and circumstances below, from the Late Member's superannuation accumulation account to the Trust that was requested before their death but received after their death, a superannuation member benefit under subsection 307-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Yes, based on the particular facts and circumstances surrounding the transfer, the unit transfers were superannuation member benefits within the meaning of subsection 307-5(1) of the ITAA 1997. Question 2 Were the superannuation member benefits paid on Date A or Date B? Answer The superannuation member benefits were paid on Date B. This ruling applies for the following period : Income year ending 30 June 20YY The scheme commenced on: 1 July 20YY
The Member was over 65 years of age. The Member held two superannuation accounts within his self-managed superannuation fund (SMSF). The Member had no death benefits dependants for the purposes of the Income Tax Assessment Act 1997 (ITAA 1997). The Member was a director of the SMSF's corporate trustee and member of the Member's SMSF from April 20XX. The corporate trustee of the SMSF is Company A since April 20XX. At the relevant time there were 5 directors of Company A, including the Member. The majority of units held by the SMSF were units held in unlisted unit trusts (the Investment Funds) managed by Company B. Company B is an unrelated third party. On Date A, the Member requested an ' in-specie' lump sum withdrawal from the SMSF to the Trust, in which the Member was a director of the corporate trustee. The lump sum withdrawal was to be comprised of the units in the Investment Funds managed by Company B. Company A acknowledged the request by the Member on Date A. On Date A the following forms were completed, signed, and emailed to investor relations at Company B: • Unit transfer forms
• A subscription agreement for the Investment Funds signed by both X and the Member as directors of the Trust. • A 'CRS self-certification form' signed by X and the Member as the controlling person for the Trust. • An ASIC extract for the Trust. As per advice from the Head of Investor Relations at Company B, the 'dealing date' listed on the forms was a future date, Date B, being the date after the valuation date. The Investment Funds are unlisted unit trusts, as a result, there are some restrictions in relation to when their units can be valued and transferred/redeemed. Their Information Memorandums outline these restrictions. In relation to the transfer of units, the Information Memorandums do not state specifically when the units will be transferred. Rather, they state that no units can be transferred without the prior written consent of the Investment Manager. The Memorandums state that a unit holder may transfer the units by returning the transfer form, which, if applicable, has been stamped for duty by the appropriate duties office, together with the Subscription Agreement completed by the new owner.
Both Information Memorandums state that, in general, redemptions may be made at the end of each calendar quarter provided a Redemption Request is received at least 45 calendar days prior to the proposed Redemption Date. The Trustee of the Investment Funds may in its discretion accept another date/or allow redemption with longer or shorter notice periods. If the request is received after the deadline for receipt for a particular Redemption Date, it will be treated as being a request for redemption on the next relevant Redemption Date. Redemption requests are irrevocable, unless otherwise agreed by the Investment Manager. For both Investment Funds, the Redemption Price is determined with reference to the Net Asset Value of the Fund as at the last calendar day of the preceding quarter. "Redemption Date' is defined in the definitions section in the Information Memorandums as follows: a. Where an investor requests that the units be redeemed as at the end of the Financial Year, the last day of the relevant Financial Year or such other date as determined by the Investment Manager; or
b. In any other case, the first business day following the next Valuation Date after the end of 45 days from the receipt of the Redemption Request by the Investment Manager. "Valuation Day' is defined as the last day of each calendar quarter, and /or such time or times as the Trustee of the Investment Funds may determine. Shortly after the requisite transfer forms were lodged, Company B provided notice to Company A, acknowledging the transfer of the units with a registered dealing date of Date B, being the day after the valuation date. The Member passed the day of Date C, which was a short time prior to Date B. The transfer of the units from the SMSF to the Trust occurred on dealing date of Date B. The Member acknowledged that the dealing date would be Date B when signing the documentation for the transfer on Date A. An email confirmation from the Investor Services on behalf of Company B was delivered to Company A on Date D stating transfer of the above listed units was confirmed to have occurred on Date B. The directors of Company A were aware of the death of the Member prior to Date B. SMSF Deed
Rule x1 of the SMSF Deed deals with benefits on death and states subject to clause x2, which deals with binding death benefit nominations, that upon the death of a member, the trustee may pay or apply for the maintenance of all or any one or more of the member's dependant's or pay to the legal personal representative of the deceased member (in such proportions as the trustee thinks fit). The entitlement may be paid by way of lump sum. Rule x3 of the SMSF Deed states that subject to the Applicable Superannuation Law, if a condition of release occurs, the member is entitled to and when required to by the Applicable Superannuation Law, must be paid the amount standing in credit in their member account by way of: a. An account based pension; b. Such other pension that complies with the Applicable Superannuation Law; c. One or more annuities that complies with the Applicable Superannuation Law; d. A lump sum; or e. A combination of the above as selected by the member and agreed to by the Trustee.
Rule x4 deals with the voluntary withdrawal of benefits and states that despite any other provision in the Rules, the member may at any time before a benefit becomes payable to the member under the Rules, withdraw from the member's account any amount permitted by the applicable Superannuation Law. Rule X5 states that the trustee may in lieu of paying an entitlement in cash, transfer any of the assets of the fund of equivalent value to the member's entitlement.
Income Tax Assessment Act 1997 Section 307-5 Income Tax Assessment Act 1997 Section 307-15 Income Tax Assessment Act 1997 Section 307-65 Income Tax Assessment Act 1997 Section 307-70 Income Tax Assessment Act 1997 Subsection 995-1(1) Superannuation Industry (Supervision) Act 1993 Paragraph 31(2)(h) Superannuation Industry (Supervision) Regulations 1994 Regulation 1.06 Superannuation Industry (Supervision) Regulations 1994 Regulation 6.12 Superannuation Industry (Supervision) Regulations 1994 Regulation 6.20 Superannuation Industry (Supervision) Regulations 1994 Regulation 6.21 Superannuation Industry (Supervision) Regulations 1994 Schedule 1 to the Table in Part 1
Release of benefits Legislative framework Paragraph 31(2)(h) of the Superannuation Industry (Supervision) Act 1993 (SISA) states that the regulations may prescribe standards applicable to the operation of regulated superannuation funds and to trustees in relation to the payment by superannuation funds of benefits arising directly or indirectly from amounts contributed to the superannuation fund. The Member was over 65 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. Under subsection 6.01(2) a lump sum can be paid by an in-specie transfer, which states that a lump sum includes an asset (in Part 6 of the SISR but not in Schedule 1).
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 Subsection 995-1(1) of the ITAA 1997 defines 'superannuation benefit' as having the meaning given by section 307-5. Section 307-5 of the ITAA 1997 states: 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. (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. Subsection 307-15(2) provides that a payment may still be your superannuation member benefit even if you request the payment is made to someone else or is rolled over to another fund. It states that a payment is treated as being made to you, or received by you, if it is made: a) for your benefit; or b) to another person or entity at your direction or request. Application - Taxation of benefits The ' in-specie' transfer benefit paid from the Member's account as requested before their death on Date A but received by the Trust after their death on Date C, is a superannuation lump sum. This is a straightforward application of subsection 307-65(1) of the ITAA 1997. Type of superannuation benefit Death benefit or member benefit An amount that a member requested to be paid from their superannuation fund before their death but was paid after their death is generally a death benefit, but may be classified as a member benefit instead of a death benefit depending on the facts and circumstances of the payment.
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. 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: a. the terms of the member's request; b. the terms of the trust deed and any other governing rules; c. the fund trustee's knowledge at the time that the payment is made (including whether they are aware that the member has died); d. the entity that the payment is being paid to; e. the circumstances and timing of the payment; and f. whether the payment is made because of and consistent with the member's request. In your case:
At the time the SMSF 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: a. voluntarily cash their benefits at any time (consistent with subregulation 6.20(1) of the SISR); b. cash the whole or a part of her benefits (consistent with subregulation 6.20(2) of the SISR); and c. cash the benefits as one or more lump sums (under both paragraph 6.20(3)(a) of the SISR and the SMSF Deed) or one or more pensions (paragraph 6.20(3)(b) of the SISR). 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. As part of the Member's request, it advised that the units were to be transferred to the Trust. To facilitate the request and transfer the units in the Investment funds to the Trust, the Trustee of the SMSF completed and lodged Australian Standard Unit Transfer forms on the same day as the Member's request.
As advised by the Head of Company B, the purchase date was listed as Date B, notwithstanding, that the Member's request was made, and the forms were signed on the Date A. In general, for both Investment Funds, redemptions may be made provided the request is received at least 45 calendar days prior to the proposed Redemption Date. The Memorandums state that the Redemption Date is: a. If the investor requests the units be redeemed at the end of the Financial Year, the last day of the relevant Financial Year or such other date as determined by the Investment Manager; or b. The first Business Day following the next Valuation Day after the end of 45 days from the receipt of the Redemption Request by the Investment Manager. The request was made on Date A and 45 calendar days after this date is Date D. The next Valuation Date, which is the last day of each calendar quarter, is 30 June 20XX. Consequently, the next Redemption Day that the redemption/transfer could be processed on was Date B.
On Date A, after the Member made the request, the trustee of the SMSF undertook all the steps it could take that were necessary to process the Member's superannuation member benefit. The Member and trustee of the SMSF were waiting for the Investment Manager of the Investment Funds, which was a third party, to process the unit redemptions/transfers. These redemptions/transfers were subject to the terms of the Information Memorandums. The payment was made after the Member's death, and it is likely that the trustee of the SMSF would have been aware of the death when the transfer of the units occurred. However, the payment was made based on the request made by the Member when they were alive, and that request to redeem/transfer the units could not be revoked unilaterally based on the policies of the Investment Funds (an unrelated third party). Considering all of the relevant facts and circumstances, at the time of the payment of the lump sum ' in-specie' transfer: a. The following took place while the Member was alive: i. The request to pay the benefits was made by the Member, and received by the Fund;
ii. The request was acknowledged and accepted by the Fund; iii. The Trustee of the SMSF undertook all steps it could take that were necessary to process the Member's superannuation benefit; b. While the payment was ultimately made after the Member had died, it was delayed by the rules of an unrelated third party, who were governed by the rules of the Information Memorandums. c. The request could not be revoked without the consent of the unrelated third party. d. The lump sum benefit was transferred to the Trust in accordance with a valid request made by the Member prior to their death, both in terms of what was paid and where it was paid. e. While the Trustee of the SMSF was aware of the Member's death which occurred shortly before the listed registration date of Date B, it could not act unilaterally to change or withdraw the transfer request
Accordingly, it is reasonable, based on all the specific facts of the case including those listed in a. to e. above, to treat the total superannuation lump sum benefit as a superannuation member benefit.. It is noted that any variation on those facts and circumstances may have led to a different conclusion. Question 2 Were the superannuation member benefits paid on Date A or Date B? Answer The superannuation member benefits were paid on Date B. Detailed reasoning As concluded in question 1, the transfer of the units in the Investment Funds to the Trust, is a superannuation member benefit. For the definition of superannuation member benefit to be met, it must be a 'payment' to you from a superannuation fund because you are a fund member. However, it needs to be considered if the payment was made: a. At the time the forms were submitted to the Investment Fund by the SMSF (Date A), or b. At the time the in-specie transfer of units occurred (Date B) The term 'payment' is not relevantly defined in the ITAA 1997 and must therefore take its ordinary meaning having regard to the context and purpose of the provision. The Australian Oxford Dictionary (2 nd
Edition) defines 'payment' as 'the act or an instance of paying' and 'an amount paid' In this instance, the term 'payment' appears in the context of subsection 307-5(1) of the ITAA 1997, which outlines payments that are superannuation benefits, with the relevant superannuation benefit being a ' payment from a superannuation fund because you are a fund member' (emphasis added). The context makes it clear that it involves an amount being paid from the fund's assets which reduce the member's balance in the fund. Self Managed Superannuation Funds Determination SMSFD 2011/1 Self Managed Superannuation Funds: for the purpose of the Superannuation Industry (Supervision) Regulations 1994, is a benefit payable with a cheque or promissory note 'cashed' at the time the cheque or note is received by the member or beneficiary ( SMSFD 2001/1) considered 'cashing' in the context of benefits that were payable with a cheque or promissory note. At paragraph 21, SMSFD 2011/1 states that the cashing of the benefits involves the making of a 'payment' that reduces the member's balance.
Paragraph 28 of SMSFD 2011/1 states that an unconditional right to immediate payment is consistent with the objective intention to transfer the funds immediately. The right itself is not a benefit in the fund, rather it may be evidence that the benefit is presently available to the member and as a result, would be regarded objectively as being paid. Paragraph 29 contrasts this with a post-dated instrument. In that instance, an immediate transfer from the SMSF to the member is not contemplated. The instrument evidences the objective intention for the funds to be transferred in the future. In the current matter, the forms to transfer the units in the Investment Funds were post-dated to Date B, being the next Redemption Date after the request was made by the Member on the Date A. These forms do not contemplate the immediate transfer of the units, rather there is an objective intention to transfer the units on the Date B.
Additionally, the transfer of the units could be revoked, albeit it could not happen unilaterally or without consent of the Trustee of the Investment Funds, which may have been withheld. As such, at the time the forms were signed and post-dated on Date A, the Member did not have an unconditional right to immediate payment of the benefit. Furthermore, for the transaction to amount to being a 'payment' for the purposes of subsection 307-5(1) of the ITAA 1997, there must be a payment of the Member benefits from the SMSF, that is there must be a reduction in the Member's benefits in the SMSF. There was no reduction in the Member's benefits in the SMSF until the transfer of the units, which occurred on Date B. As a result, the superannuation member benefit was not 'paid' until Date B. The superannuation member benefits were therefore paid on Date B.