Does subsection 302-10(2) of the Income Tax Assessment Act 1997 (ITAA 1997) apply to the superannuation death benefits paid to the trustee of deceased estate?
Yes. When subsection 302-10(2) applies, the superannuation death benefits are non-assessable-non-exempt income according to section 302-60 of the ITAA 1997. This ruling applies for the following period: Income year ending 30 June 20XX The scheme commenced on: 1 July 20XX
The Deceased passed away. The Deceased was survived by their two children, A and B. A and B were under 18 years of age on the date of the death of the Deceased. A trustee was appointed as the executor and trustee (the Trustee) of the estate of the Deceased (the Estate). The Trustee was granted probate of the last Will and Testament of the Deceased (the Will). The Will provides that: (a) The net residue of the Estate is to be divided equally between two discretionary testamentary trusts (the Testamentary Trusts) created by the Will, namely the: (i) the C Trust, wherein the primary beneficiary is A; and (ii) the D Trust, wherein the primary beneficiary is B; and (b) the Trustee is to establish the Testamentary Trusts. Whilst the beneficiaries of each of the Testamentary Trusts were defined broadly in the Will, the instrument provided that the trustee of Testamentary Trusts: (a) has the discretion to pay all or part of the income and all or part of the capital of the Testamentary Trusts as the Trustee thinks fit; (b) ...
The Deceased was a member of a Superannuation Fund (the Fund) on the date of their death and a superannuation lump sum Death Benefit became payable by the Fund to the Estate as a consequence of the Deceased's death. Prior to the receipt of the Death Benefit from the Fund to the Estate, the Trustee resolved to: (a) accept and receive the Death Benefit from the Fund when it is paid to the Estate; (b) segregate the amounts of the Death Benefit from the Fund in the Estate such that: (i) the Estate will hold the Death Benefit on trust pursuant to the terms of the Will; (ii) the Death Benefit will not be pooled with other assets of the Estate; (iii) no other beneficiary of the Estate can obtain an interest in or benefit from the Death Benefit; and (iv) the capital of the Death Benefit will be: (A) held in the Estate solely and indirectly for A and B; and
(B) distributed equally from the Estate to the C Trust and D Trust in accordance with the Will and in the manner whereby only A (in the case of the C Trust) or B (in the case of the D Trust) are the only persons to benefit from the capital of the Death Benefit received by the Estate; and (c) make an early interim distribution of the Death Benefit equally between the C Trust and D Trust. On the same day, the Trustee, in respective capacity as the trustee for each of the Testamentary Trusts, executed Deeds of Segregation (the Deeds) to segregate the capital of the Death Benefit which each of the Testamentary Trusts is to receive from the Estate as a separate pool of asset so that the segregated Death Benefit will: (a) not be pooled with other assets of the trust and the trustee shall administer the segregated Death Benefit as a distinct asset group which is separate from the other assets held in the trust; and (b) be held and maintained in the trust such that:
(i) the capital beneficiaries of the segregated Death Benefit of the trust shall be restricted and limited only to the specified beneficiary (being A in the case of the C Trust or B in the case of the D Trust) during the lifetime of the specified beneficiary; and (ii) the Trustee's powers and discretion in the trust deed in relation to the distribution of the capital of the segregated Death Benefit shall be restricted and limited to the respective specified beneficiary during the lifetime of the specified beneficiary. In addition, prior to the receipt of the Death Benefit: (a) the Estate had set up a dedicated bank account for the purposes of receiving and segregating the Death Benefit to be received from the Fund as contemplated by the Resolution; and (b) similarly, the trustee of each of the Testamentary Trusts had set up a dedicated bank account for the purposes of segregating the Death Benefit in each of the Testamentary Trusts as contemplated by the Deeds. In consistent with the Resolution, the Deeds and the Will of the Deceased,
(a) the Death Benefit was paid by the Fund to the dedicated bank account of the Estate for receiving the Death Benefit (so that there was no inter-mingling of the Death Benefit with any other monies in the Estate); and subsequently, (b) the Death Benefit was divided into two equal shares and a share was transferred from the Estate's bank account to each of the dedicated account set up by: (i) the trustee for the C Trust; and (ii) the trustee for the D Trust, as contemplated by the Will. The amount of the Death Benefit paid by the Fund to the Estate was $X of which the taxed element under taxable component is X% of the amount of the Death Benefit received.
Income Tax Assessment Act 1997 section 302-10 Income Tax Assessment Act 1997 section 302-60 Income Tax Assessment Act 1997 section 995-1 Income Tax Assessment Act 1997 section 307-5 Income Tax Assessment Act 1997 section 302-195
Question Does subsection 302-10(2) of the ITAA 1997 apply to the superannuation death benefits paid to the trustee of deceased estate? Summary Subsection 302-10(2) applies to the superannuation death benefits. The superannuation death benefits are non-assessable-non-exempt income according to section 302-60 of the ITAA 1997. Detailed reasoning 1. Under subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) a 'superannuation death benefit' has the meaning given by section 307-5. 2. A superannuation death benefit is defined in subsection 307-5(4) of the ITAA 1997 as being a payment described in Column 3 of the table in subsection 307-5(1). That is: ... A payment to you from a superannuation fund, after another person's death, because the other person was a fund member. 3. The Deceased passed away, and benefits were paid to the Trustee of the Estate by the Fund because the Deceased was a member of the Fund. Hence the payment is superannuation benefits within the meaning of Column 3 of Item 1 of the table in subsection 307-5(1) of the ITAA 1997 and superannuation death benefits as defined in subsection 307-5(4).
Superannuation death benefits paid to a trustee of a deceased estate 4. Section 302-10 of the ITAA 1997 deals with superannuation death benefits paid to trustee of deceased estate. Subsection 302-10(1) of the ITAA 1997 states: This section applies to you if: (a) you are the trustee of a deceased estate; and (b) you receive a superannuation death benefit in your capacity as trustee. 5. As the payment was superannuation death benefits received from the Fund by the Trustee of the Estate, section 302-10 of the ITAA 1997 will apply to the Trustee of the Estate. 6. 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. The provision operates to provide the same tax treatment that would apply where the beneficiary to receive the death benefit directly. 7. Subsection 302-10(2) of the ITAA 1997 states: To the extent that 1 or more beneficiaries of the estate who were
death benefits dependants of the deceased have benefited, or may be expected to benefit, from the superannuation death benefit: (a) the benefit is treated as if it had been paid to you as a person who was a death benefits dependant of the deceased; and (b) the benefit is taken to be income to which no beneficiary is presently entitled. 8. This means that where a dependant of the deceased is expected to receive part or all of a superannuation death benefit, it will be subject to tax as if it was paid to a dependant of the deceased, and the benefit is taken to be income to which no beneficiary is presently entitled. 9. Subsection 302-10(3) of the ITAA 1997 states: To the extent that 1 or more beneficiaries of the estate who were not death benefits dependants of the deceased have benefited, or may be expected to benefit, from the superannuation death benefit: (a) the benefit is treated as if it had been paid to you as a person who was not a death benefits dependant of the deceased; and (b) the benefit is taken to be income to which no beneficiary is presently entitled.
10. Accordingly, where a person that is not a dependant is expected to receive part or all of a superannuation death benefit, it will be subject to tax as if it were paid to a non-dependant of the deceased to that extent, and the benefit is taken to be income to which no beneficiary is presently entitled. 11. Subsection 302-195(1) of the ITAA 1997 defines a death benefits dependant of a person who has died as: (a) the deceased person's spouse or former spouse; or (b) the deceased person's child, aged less than 18; or (c) any other person with whom the deceased person had an interdependency relationship under section 302-200 just before he or she died; or (d) any other person who was a dependant of the deceased just before he or she died.
12. Where death benefits will be paid from an estate into a testamentary trust established under a will, the trustee of the testamentary trust holds the assets of the deceased that have been transferred to the trust, for and on behalf of, the nominated beneficiaries. Therefore, consideration of the terms of the trust and who has or may be expected to benefit from the superannuation death benefits is required in order to determine the relevant tax treatment of the death benefits paid to the deceased's estate. 13. In this case, the effect of the Resolution and the Deeds was that all of (the capital of) the Death Benefits received by the Trustee of the Estate from the Fund are distributed equally and held solely for the benefit of A in the case of the C Trust and B in the case of the D Trust. Therefore, A and B are the respective beneficiary expected to benefit from the Death Benefits.
14. In applying the facts to the death benefits dependant definition, it is accepted that A and B were the children of the Deceased and were less than 18 years of age on the date of death of the Deceased; it met the death benefits dependant definition, by satisfying paragraph 302-195(1)(b) of the ITAA 1997. 15. Consequently, subsection 302-10(2) of the ITAA 1997 applies to the Death Benefits paid to the Trustee of the Estate. Taxation of lump sum death benefits to death benefits dependants 16. According to section 302-60 of the ITAA 1997: A superannuation lump sum that you receive because of the death of a person of whom you are a death benefits dependant is not assessable income and is not exempt income. 17. Therefore, in this case, the Death Benefits are not assessable income and are not exempt income to the Trustee, where it is taken to be income to which no beneficiary is presently entitled.