A legal specialist has confirmed the definitive stance the ATO has adopted on how it will treat situations where a request for a superannuation benefit is lodged before a member’s passing, but the payment is made after the death.
Cooper Grace Ward special counsel Steven Jell noted the ATO historically took a more discretionary approach in these cases and would rule a paid entitlement could be considered as a member benefit under certain circumstances.
“The ATO has changed that position quite substantially in my view … the odds are that the ATO is going to treat that [payment] as a death benefit as compared to a member benefit, even if the member has done everything within their control to withdraw their entitlements from the fund,” Jell told attendees at his firm’s 2024 Annual Adviser Conference in Brisbane last week.
“The ATO’s view is that knowledge is the key differentiator. If the trustee becomes aware that the member has passed away and subsequently makes the payment, the ATO will basically say it’s a death benefit [and] the private binding rulings that have occurred over the last 18 months are really evidence of that.
“When we’re dealing in the self-managed super fund world, we’ve got the member representation rules and they are such that, more often than not, [a trustee] is going to know that their spouse [or another member of the fund] has passed away.
“In most circumstances, the change in the ATO view is going to mean that these payments made shortly after death where the request is made prior to death are going to be treated as death benefit payments.”
He advised preparation was key for SMSF practitioners to attain favourable outcomes for clients facing such circumstances.
“Leaving superannuation in a superannuation environment for as long as possible is likely to produce a more tax-effective outcome for your client, but don’t leave it too long,” he noted.
“If we leave it too long and the process to implement this type of payment shortly after death takes longer than anticipated, the consequences for our members and clients can be quite severe.
“You’re going to be the one that needs to demonstrate why the ATO’s position should move back to a member benefit paid after death [and] I think that’s going to be a lot harder to prove now than it has been historically.”