Superannuation

1 Was there a payment of a 'superannuation benefit' on XX XX 20XX within the meaning of subsection 307-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

1 No. Question 2 If there was not a payment of a 'superannuation benefit' on XX XX 20XX, were the subsequent transfers/distributions to the deceased estate 'superannuation member benefits' within the meaning of subsection 307-5(1) of the ITAA 1997? Answer 2 No. This ruling applies for the following periods Year ended 30 June 20XX Year ended 30 June 20XX Year ended 30 June 20XX Year ended 30 June 20XX Year ended 20 June 20XX The scheme commenced on: The scheme commenced on 1 July 20XX

: The member (the Member) was born on XX XX 19XX. The Member passed away on XX XX 20XX (Date of Death), at the age of XX. At the Date of Death, the Member was over 65 years of age. At the Date of Death, the Member was the sole member of a self-managed superannuation fund (the Fund). The Fund's income tax returns reference the payment to the Member of a retirement phase superannuation income stream. The trustees of the Fund (the Trustees) were the Member and another individual (Trustee B) who is the Member's relative. Trustee B was appointed as the Member's attorney under an Enduring Power of Attorney (EPOA). On XX XX 20XX, the Member provided a document titled 'Notice to Pay a Lump Sum Benefit' (the Notice) to the Trustees, which requested and directed them: 1.              to immediately pay out the entirety of the benefit to me equal to one hundred percent (100%) of my member's benefits in the Fund ; and 2.              to take all steps necessary to give immediate effect to the previous clause;

3.              if subsequent to receiving, acknowledging and administering this request by resolution, it takes administrative time and procedures to make the actual payments and transfers, then hold the assets representing my member's benefit upon bare trust for me. Clause XXX of the Fund Deed states: Transfer of Assets XXX With the consent of a member or beneficiary to whom a benefit is payable, the trustee may, instead of paying or transferring cash, transfer investments of equivalent value to the member or beneficiary or to the trustee of the relevant approved benefit arrangement. Clause XX of the Fund Deed states:: XX The trustee may pay a member or, if applicable, a dependant of a member, a preserved payment benefit in any of the following circumstances: XX.X The member reaches the relevant preservation age and takes a transition to retirement pension in accordance with Part X. XX.X The member retires from gainful employment on or after reaching the relevant preservation age. XX.X The member becomes totally and permanently disabled. XX.X The member becomes totally and temporarily disabled. XX.X The member reaches age 65. XX.X The member dies.

XX.X Any other circumstances allowed by superannuation law. On XX XX 20XX, following the giving of the Notice by the Member, the Trustees resolved to pay the Member the whole of the Member's benefits immediately, and to hold all of the funds and assets on bare trust until the entirety of the Member's benefit had been paid to the Member. The assets of the Fund comprised shareholdings, bank accounts and a managed investment. The following documents were signed to give effect to the request: a.              A 'notice' from the Trustees to the Member which stated: 1. The Trustee confirms it has given notice in accordance with clause XXX of the Trust Deed . A copy of that notice acknowledged by the member is Annexed and Marked "A" and is in writing in accordance with clause XXX of the Trust Deed . 2. The Trustee confirms the claim by XXX XXX XXX (the Member) is not out of time (see clause XXX of the Trust Deed ). 3. The Trustee confirms that it will deduct any tax that is payable from the funds held in the bare trust, on which the Trustee will hold the funds, arising from the payment of the benefit (clause XXX of the Trust Deed ). 4. The Trustee

will comply with clauses XXX and XXX of the Trust Deed by sending the benefit to the postal address of XXX XXX XXX (the Member)... 5.              The Annexure marked "B" is a receipt executed by XXX XXX XXX (the Member) in compliance with clause XXX and XXX of the Trust Deed .' The Member confirmed, by countersigning the notice, that they were not presently under a legal disability 'for the purposes of clause XXX of the Trust Deed' and that they would 'accept either a transfer of cash or the investments, or in whatever form is convenient for the Trustee, to transfer their member's benefit to them for the purposes of clause XXX'. b.              A 'Notice to Pay a Lump Sum Benefit' (Annexure A).This document states that the Trustees give notice to the Member 'that a lump sum benefit is available to be immediately paid to you'. This document was signed by the Trustees and acknowledged by the Member.

c.              A 'Receipt of Lump Sum Benefit' (Annexure B). This document states that the Member acknowledged, by its receipt, having received, in equity, the whole of their lump sum benefit in the Fund. It further states that, until the administrative steps have been made to pay or transfer that lump sum benefit to them, the Trustees 'will hold those assets and monies on bare trust for me absolutely, and not in their capacity as Trustees of XXXXXX (the Fund) but as Bare Trustee'. This document was signed and acknowledged by both the Member and the Bare Trustee. d.              The 'Minutes of Meeting - XXXXX Superannuation Fund'. This document states that the Trustee resolved that the Member 'be paid out the whole of his member's benefit immediately', and that 'all funds and assets be held upon bare trust by the Trustee, separate from the Fund until the entirety of the member's benefit has been paid' (to the Member). The meeting minutes were signed by both the Trustees, and the Member. All documents signed by the Member, in their capacities as Member, Trustee, and Bare Trustee, were (physically) signed on their behalf by Trustee B, as the Member's attorney under the EPOA.

On XX XX 20XX, the Member passed away. On XX XX 20XX, probate was granted to Trustee B and two other individuals, Executor A and Executor B, as executors (collectively, the Executors) of the Trustee for the Member's estate (the Estate). On XX XX 20XX, Executor A was appointed as an additional trustee of the Fund. On XX XX 20XX, Estate monies were applied in the payment of outstanding liabilities in relation to the administration of the Fund. On XX XX 20XX, the Trustee and the Executors entered into a Deed of Indemnity and Release (the Deed). The Deed referred to the Notice, and states that, following the Member's death, 'complexities arose in relation to the administration of the Fund, including difficulties in calculating the amount of the Benefit, in circumstances where there are unsettled questions regarding: (i)             The final taxation position and liabilities of the Fund ; and (ii)            The administration and other expenses that will arise in finalising the outstanding taxation matters, and winding up the Fund , and a (sic) result, the Benefit continues to be held by the Trustee on bare trust for (the Member's) estate.'

The Deed states that, to avoid any further delay to the proper administration of the Fund, the Trustee agreed to pay to the Estate the full balance held in the Fund, by way of 'cash payments' and ' in specie distribution of assets' (referred to in the Deed as 'the Payment'). The Deed further states that, in exchange for the Trustee making the Payment, the Executors agreed to 'fully release and indemnity (sic) the Trustee, from, and pay from (the Member's) estate: (i)             any taxation liabilities required to be remitted to the Australian Taxation Office on behalf of the Trustee or the Fund , for any reason; and (ii)            all professional and other liabilities that arise as a result of the winding up of the Fund, including accounting and legal expenses.' On XX XX 20XX, the Fund's ABN was cancelled. The Fund lodged income tax returns for the years ending 30 June 20XX and 30 June 20XX, and subsequently amended those returns. We note that:

a.              The original returns for the years ending 30 June 20XX and 30 June 20XX were lodged on the basis that the Fund still owned all its assets, and that no lump sum superannuation member benefits had been paid. The original returns recorded no CGT events and recorded one member record, the 'Executor for XXX (the Member)'. b.              The original return for the second year, recorded a lump sum payment of $X as a death benefit to a non-dependant. c.              The amended returns recorded no CGT events, recorded one member record, the 'Executor for XXX (the Member)' and both recorded that the Fund was wound up during the year. d.              The amended return for the first year recorded an income stream payment of $X as being paid e.              While the above returns recorded a retirement phase account (Non CDBIS), the ATO has not received any reporting on or after 1 July 20XX that indicates that the Member was receiving a retirement phase superannuation income stream.

f.               The audit reports for the amended returns were completed on XX XX 20XX (for the year ended 30 June 20XX) and XX XX 20XX (for the year ended 30 June 20XX). Although the amended returns show that the Fund was wound up (in both financial years), the audit reports do not include any reference to considerations specific to a wind-up. g.              In none of the above returns, original or amended, was any Fund income (assessable or exempt) reported. All expenses were recorded as non-deductible expenses. During the period September 20XX to July 20XX, the assets of the Fund (in the form of shareholdings and cash) were distributed to the Estate. In the inventory of assets and liabilities (the Inventory) filed with the Executors' application for the grant of probate, the following asset was listed at a value of $X: Beneficial interest in monies held by XXX (Trustee B) as Trustee, on the terms of a bare trust representing the entirety of the deceased's member's benefit from xxx (the Fund) paid to the deceased prior to death (payable to the estate of XXX (the Member). The source of the valuation of this asset was 'Executors' estimate'.

An Excel spreadsheet provided by the Applicant indicates that shareholdings were transferred from the Fund to the Executors and includes the dates of those transfers. Provided 'Issuer Sponsored Holding Statements' (Holding Statements) confirm the holding of the above share volumes by Trustee B at one point in time, with subsequent Holding Statements (of various dates) showing the holders as Trustee B and Executor A, on behalf of the Fund. The Holding Statements do not reference the value of the shareholdings, and no third party documentation has been provided concerning the value of those shares, at the various dates of transfer to the Executors. The Applicant has provided a table (the Table) showing transfers to the Executors, which purportedly represent the proceeds from redeeming an investment, and the balances from closing the bank accounts (which included dividend and interest income received after XX XX 20XX). We note that the Table also references various other amounts applied by the Trustees towards the in specie payment of liabilities.

: Income Tax Assessment Act 1997 Division 301 Income Tax Assessment Act 1997 section 301-10 Income Tax Assessment Act 1997 section 301-95 Income Tax Assessment Act 1997 section 301-100 Income Tax Assessment Act 1997 Division 302 Income Tax Assessment Act 1997 section 302-140 Income Tax Assessment Act 1997 section 302-145 Income Tax Assessment Act 1997 section 307-5 Income Tax Assessment Act 1997 subsection 307-5(1) Income Tax Assessment Act 1997 subsection 307-5(2) Income Tax Assessment Act 1997 subsection 307-5(4) Income Tax Assessment Act 1997 subsection 307-15(2) 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) Income Tax Assessment (1997 Act) Regulations 2021 Regulation 307-70.01 Income Tax As

: Question 1: Release of benefits Legislative framework - Superannuation benefits under the ITAA 1997 Subsection 995-1(1) of the ITAA 1997 defines 'superannuation benefit' as having the meaning given by section 307-5. Subsection 307-5(1) of the ITAA 1997 states that a superannuation benefit is a payment prescribed in the table in that subsection or in subsection 307-5(1A) of the ITAA 1997. Section 307-5 of the ITAA 1997 states: 307-5(1) A superannuation benefit is a payment described in the table. (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) of the ITAA 1997 states that a payment may still be regarded as a superannuation benefit even if you request it be paid to another person, an entity, or rolled over to another fund. it states that payment is treated as being made to you, or received by you, if it is (a) for your benefit; or (b) to another person or entity at your direction or request. Payment of superannuation benefits from regulated superannuation funds Subsection 31(1) 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 of those funds. Paragraph 31(2)(h) of the SISA states that the standards that may be prescribed include the payment by superannuation funds of benefits arising directly or indirectly from amounts contributed to the superannuation funds. Part 6 of the SISR contains the 'payment standards' that apply to all regulated superannuation funds, and fund trustees, when paying a member's benefits in the fund. Division 6.2 of the SISR sets out general rules on the payments of benefits. A member's benefit can only be paid in accordance with regulation 6.17 of Division 6.2 of the SISR. Subparagraph 6.17(2)(a)(i) states that a member's benefit in a regulated fund may be paid by being cashed in accordance with Division 6.3.

Division 6.3 of the SISR outlines the conditions for cashing benefits. Regulation 6.20 of the SISR outlines the conditions of voluntary cashing of unrestricted non-preserved benefits in regulated superannuation funds and regulation 6.21 of the SISR outlines the compulsory cashing of benefits in regulated superannuation funds on the death of a member. Under subregulation 6.20(1) of the SISR a member's unrestricted non-preserved benefits may be cashed at any time. As per subregulation 6.20(3), the benefit may be cashed in the form of a lump sum. 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 or as an interim and final lump sum. Subregulation 6.01(2) of the SISR states that a lump sum, in Part 6 but not in Schedule 1, includes an asset. Additionally, regulation 5.08 of the SISR in states that for subsection 31(1) of the SISA:

it is a standard applicable to the operation of regulated superannuation funds and approved deposit funds that the trustee of a fund must ensure that a member's minimum benefits in the fund are maintained in the fund until the benefits are: (a) cashed as benefits of the member, other than for the purpose of the member's temporary incapacity; or (b) rolled over or transferred as benefits of the member; or (c) transferred, rolled over or allotted under Division 6.7. If a benefit is received that is not in accordance with the payment standards prescribed under subsection 31(1) of the SISA, the amount of the superannuation benefit is included in the individual's assessable income under subsection 304-10(1) of the ITAA 1997 and taxed at the individual's marginal tax rate. In your case On XX XX 20XX, prior to their death, the Member requested (via the Notice) that the Trustees pay out the entirety of their benefits in the Fund, and that the Trustees take all necessary steps to give immediate effect to this request. However, the request was subject to the following clause in the Notice:

if subsequent to receiving, acknowledging and administering this request by resolution, it takes administrative time and procedures to make the actual payments and transfers, then hold the assets representing my member's benefit upon bare trust for me. At the time the Member made the request, the Member was over 65 years of age. Consequently, the Member had satisfied a nil cashing condition of release and the Member's benefits had converted to unrestricted non-preserved benefits. As a result, the Member could cash the whole of their benefit at any time. The benefit could be cashed in the form of an in specie lump sum under both Regulation 6.20(3) of the SISR, and the Fund's Deed. As noted earlier, subsection 307-15(2) of the ITAA 1997 states that a payment is treated as being made to you if it is made for your benefit, or to another person or entity at your direction or request. As a result, the transfer of the assets to the Trust may be classified as a superannuation benefit, if they were transferred to the Trust for the Member's benefit (and at the Member's request or direction).

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 (2nd 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 identifiable amount being paid from the fund's assets, which reduce the member's balance in the fund. On XX XX 20XX, the Trustees of the Fund resolved to hold all of the Fund's assets on bare trust until the Member's benefit had been paid. The resolution was not simply to hold the amount of the Member's benefit on bare trust: indeed, the amount of that benefit was not known at that point. As such, the amount of the benefit had first to be determined.

As documented in the amended income tax returns and the Deed, the Fund had outstanding liabilities as at XX XX 20XX. The Deed states that, following the Member's death (which was more than one month after XX XX 20XX), 'complexities arose in relation to the administration of the Fund, including difficulties in calculating the amount of the Benefit ...' Additionally, no CGT events were recorded in any of the Fund's returns. As a result, on XX XX 20XX, the Member did not have an unconditional immediate right to the payment of the amount held within their superannuation interest. Rather, the Member had a right to receive a payment, once the outstanding liabilities had been determined. The Member acknowledged, in the Notice, that the Trustees may have needed to take certain administrative actions before the benefit could be paid. However, the Trustees were required to do more than take certain administrative actions (such as filling out required paperwork to effect the payment or realisation of assets before the payment was made): the Trustees had first to ascertain the amount of the benefit payable to the Member.

For the transaction to amount to being a 'payment to you from a superannuation fund' for the purposes of the subsection 307-5(1) of the ITAA 1997, there must be an actual payment from the Fund, and an equivalent reduction in the Member's interest in the Fund. This is the case whether or not the payment was made directly to the Member, or directed to be paid to another entity or party.

As outlined above, the Trustees stated that there were difficulties in calculating the amount of the Member's final benefit and that these complexities delayed the final payment. As the amount the Member was entitled to receive was not known on XX XX 20XX, we do not consider that a 'payment' could have been made on that date. Further, in order to pay a superannuation benefit, a trustee is also required to apply various provisions of the ITAA 1997 to the payment, for instance the proportioning rule, which is used to determine the benefit's taxation components. These provisions all rely on knowing the value of the superannuation interest at the relevant time, and the value of the superannuation benefit being paid. It is not clear how these provisions could have been applied by the Trustees if the amount that was purported to have been paid was not known at the time of that purported payment. As the amount of the Member's benefit in the Fund was not known, there could not be a 'payment' at that time, that reduced the Member's balance. Consequently, there was not a payment of a superannuation benefit to the Member on XX XX 20XX. Question 2:

As outlined previously, subsection 307-15(2) of the ITAA 1997 states that a payment is treated as being made to 'you' if it is made for your benefit, or to another person or entity at your direction or request. As a result, the transfer of the assets to the Estate is a superannuation benefit. An amount that a member requested to be paid from their superannuation fund before their death, but that 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. 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. 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 this case, the Member requested an amount be paid from their Fund before they died. The Member requested the payment of the entirety of their benefit, and that the Trustees take all necessary steps to give immediate effect to the request. However, this request was subject to the following clause in the Notice: if subsequent to receiving, acknowledging and administering this request by resolution, it takes administrative time and procedures to make the actual payments and transfers, then hold the assets representing my member's benefit upon bare trust for me. As noted above, this request did not result in a payment of a superannuation benefit at that time. On XX XX 20XX, probate was granted in relation to the Estate.

Payment of the outstanding liabilities in relation to the administration of the Fund occurred on XX XX 20XX. Following that payment, the Deed was entered into, whereby the Trustees agreed to pay the full balance held by the Fund to the Estate, by way of cash payments and the in specie distribution of assets. The assets were subsequently distributed to the Estate during the period September 20XX to July 20XX. This distribution took place after both the granting of probate, and the payment of the outstanding liabilities of the Fund. The distributions of the assets to the Estate were not made because of, nor consistent with, the request made by the Member. Rather, the distributions were made as a result of probate being granted, and pursuant to the terms of the Deed. Furthermore, the assets were transferred to the Estate, which is a 'payment to you from a superannuation fund, after another person's death, because the other person was a fund member' and, as per item 1 in the table in subsection 307-5(1) of the ITAA 1997, is a superannuation death benefit.

As a result, the distributions of assets to the Estate that were made during the period September 20XX to July 20XX were superannuation death benefits.