Death benefits

Benefit guidance creates more questions

death benefit guidance

Recent ATO guidance has added confusion to situations where a member dies before their super benefit payment request has been made.

The ATO has added more confusion to questions regarding the status of a benefit payment requested by a member who died before its distribution with the release of new guidance that runs counter to the positions it has taken in past private binding rulings, according to a sector specialist.

SMSF Alliance principal David Busoli suggested the release of the guidance materials QC45254 and QC42473, which state where a member requests a benefit to be paid but dies before they receive it “it may be a member benefit in some limited cases” did not provide any certainty or a basis for practical outcomes.

The guidance also indicates the treatment of a payment as a member benefit “is determined by the facts and circumstances surrounding the payment” including the terms of the request from the member, and of the trust deed, and the mortality of the member.

Busoli said this distinction would create tax problems and ran counter to what the regulator has said to date.

“Essentially the release indicates that the benefit will be paid as a member benefit if the trustee does not know the member has died, and a death benefit if they do. The tax differences can be considerable,” Busoli explained.

“A number of private binding rulings on the matter over the last few years have determined that the benefit is a member withdrawal, not a death benefit payment, irrespective of the trustee’s knowledge of the member’s death. The trustee’s knowledge of the death did not even rate a mention.

“What we were expecting was a simple determination one way or the other. What we got was a determination based on subjective and arguable facts,” he pointed out.

According to Busoli a case study included with the guidance, in which a SMSF trustees knew the member had made the request but not authorised it before they died, is also unclear.

“Even the example raises doubt as it states that ‘the trustee of the SMSF knew Jack had passed away before authorising the payment’. Does this mean that, if the payment had been authorised before the member had passed, it would have been a member withdrawal?

As such he concluded the determination was not fit for purpose and should be replaced.

Copyright © SMS Magazine 2024

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital