The ATO has clarified the status of how a death benefit rollover should be reported and how payments should be made following changes that were made law in June but backdated to 1 July 2017.
In an update on its website related to Australian Prudential Regulation Authority-regulated funds, the ATO stated changes to the Treasury Laws Amendment (2019 Measures No 3) Act 2020, made on 22 June had a retrospective effect to mid-2017 such that any untaxed element determined under section 307-290 of the Income Tax Assessment Act 1997 (ITAA) was not included in the receiving fund’s assessable income.
That section of the ITAA indicates an element that is untaxed in the fund of the taxable component of a lump sum superannuation death benefit should be included when a super fund has claimed, or intends to claim, a deduction for death benefits or life insurance premiums.
The ATO noted any transferring fund would still required to apply section 307-290 to determine if there was an untaxed element in the lump sum being rolled over where they have claimed, or will claim, in relation to a death benefit or insurance premium.
The regulator added where a dependent beneficiary rolled over a death benefit it would take a different approach.
“It is the commissioner’s view that there is insufficient connection between any deductions claimed by the transferring fund and any lump sum benefits paid by the receiving fund from the dependent beneficiary’s new pension interest, for section 307-290 to apply to any of those subsequent payments,” it said.
“That is, where the receiving fund does not claim any deductions for any death and disability insurance offered to the dependent beneficiary as part of their new pension interest in the receiving fund, section 307-290 will not apply to any lump sums paid from that interest.”
In an effort to provide further clarity, the ATO stated that when reporting death benefit rollovers from a fully taxed superannuation fund it was not necessary to include an element untaxed in the fund when completing item 16 of the death benefits rollover statement and any amount that is determined under section 307-290 can be reported as a taxable component – element taxed in the fund.
Where a rollover took place from an untaxed or hybrid fund, it was only necessary to report a taxable component – element untaxed in the fund to the extent it is not determined under section 307-290 when completing item 16 of the death benefit rollover statement.
In the event a death benefit was paid from a fully taxed fund after receiving a rollover, the ATO stated “where a receiving fund has received a rollover death benefit the dependent beneficiary’s interest in the receiving fund will only comprise the tax-free component and the taxable component” and this was the case regardless of whether an untaxed element had been reported in the rollover benefit statement or not.
“Where the receiving fund does not claim any deductions for insurance premiums in respect of the dependent beneficiary as part of their new interest, section 307-290 will not apply to any superannuation lump sum paid from the superannuation interest. The lump sum may comprise solely tax-free component and taxable component – taxed element.
“Where the receiving fund claims a deduction for insurance premiums in respect of insurance offered to the dependent beneficiary as part of their new interest, the fund will be required to apply section 307-290 to any subsequent death benefit lump sums paid from that interest.”
The ATO also addressed what would happen where a death benefit was paid from an interest where a fund reported an untaxed element on or after 1 July 2017.
“The fund may have previously received a rollover benefit statement reporting an untaxed element,” it said.
“Where the receiving fund can clearly ascertain that the rollover was from a fully taxed fund and the untaxed element was only reported due to it being determined in accordance with section 307-290, the trustee can treat this amount as being a taxable component-element taxed in the fund back to the date of the rollover.”
