ATO, Compliance, Death benefits, Documentation, Regulation

Benefit review reinforced by ruling

Death benefit Incapacity Benefit payments Documentation

The need to have up-to-date SMSF documents related to incapacity and benefit payments has been brought to the fore by a recent ATO private ruling on benefit payments after the death of a member.

A recent ATO private ruling on the treatment of superannuation benefits on the death of a fund member has highlighted the need to ensure documents relating to incapacity and death are up to date, an SMSF lawyer has noted.

DBA Lawyers principal Dan Butler said the private binding ruling, which related to benefits paid after the death of a member but requested beforehand, highlights that an SMSF trustee would normally be aware of the death of a member so the latter should regularly review what happens to their benefits at death.

“The decision is consistent with the current approach by the ATO and it doesn’t appear the fund involved was an SMSF,” Butler told selfmanagedsuper.

“There was a lack of legal capacity for the member and the fact a government-appointed person was the administrator of the estate of the member, and they put in the commutation request the day before the member passed away, means it could be a large Australian Prudential Regulation Authority-regulated fund.

“If this was the case, the trustee was unlikely to have any knowledge of the status of that individual member at the time of the commutation request,” he said, referencing ATO guidance that stated a benefit paid after the death of a member would not be a death benefit if the trustee was unaware of their passing at time of payment.

Despite the lack of confirmation of the type of fund involved, he said the private binding ruling, which was made public on 6 November, emphasised the need for SMSF trustees and members to have current documentation regarding what happens after their death.

“The difference here is that with an SMSF the trustees often know what’s happening or have close information on the members and therefore are able to take a different perspective on the treatment of the benefit,” he said.

“The ruling reinforces that you have to be mindful about your estate planning and have it set up correctly, including having an enduring power of attorney with an express power for super, the deed must be in order and, with a corporate trust deed, directions about who will succeed a director so there is capacity to make a withdrawal on a timely basis if something untoward happens.

“The reality is these matters are popping up left, right and centre and death is a line in the sand. Once that happens your chances of getting a death benefit in an SMSF is not high. You’ve got to get over that evidentiary burden so the ATO can see why they should exercise their judgment that it’s a member benefit and not a death benefit.

“It is a safety procedure to go through these documents regularly to make sure people are aware how they should be exercised on your behalf because the ATO’s position has changed.

“It was only a year ago this became controversial because we saw some suggestions that all you needed was a document in your top drawer and all you had to do was drop a date in it, which meant there was some loose information getting around.”

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