The ATO has released a ruling demonstrating its position on the tax treatment of superannuation benefit payments made after the death of a member in conjunction with the application of rules as to who can considered a death benefit dependant.
In a private ruling released on 22 June, the regulator rejected a suggestion the payment of a superannuation death benefit of a member who passed away to the trustee of the their estate should be treated as if it had been paid to a death benefits dependant under subsection 302-10(2) of the Income Tax Assessment Act (ITAA) 1997.
The case before the ATO involved a deceased super fund member who held two life insurance policies within their superannuation fund, with one of the policies including a non-binding nomination listing their spouse as the beneficiary, while the other policy had no beneficiary listed.
While the policies were being paid out to the dead member’s spouse, the latter also passed away, leading the trustee of the fund to advise the executor of the member’s estate they had yet to determine who was entitled to receive the superannuation balance in relation to one policy.
The ATO highlighted that one of the definitions of death benefits dependant in subsection 302-195(1) of the ITAA was a deceased person’s spouse or former spouse, which applied in this case, but added: “The concessional tax treatment afforded by subsection 302-10(2) of the ITAA 1997 is reliant upon the superannuation death benefit being received or expected to be received by a death benefit dependant.”
In this case, the death benefit dependant did not receive the benefit, which was instead paid to the trustee of the deceased estate, leading the ATO to look past their spouse as a beneficiary and into who else may benefit via the estate.
“To determine whether the concessional tax treatment under subsection 302-10(2) of the ITAA 1997 will apply to the deceased’s superannuation death benefit as paid into the deceased’s spouse’s estate, there must be an expectation that a death benefit dependant will benefit from the superannuation death benefit,” it said.
“This requires that we adopt a look-through approach to consider relevant factors, including who the potential beneficiaries of the estate are and when the beneficiary will receive the death benefit.”
In doing so, the ATO noted subsection 302-10(2) refers to death benefit dependants who “have benefitted, or may be expected to benefit, from the superannuation death benefit”, but for this to apply “there needs to be a reasonable expectation that the superannuation death benefit will be received by a death benefits dependant”.
“In this case, it would be reasonable to conclude that the deceased’s spouse has not benefitted, nor can they be expected to benefit, from the superannuation death benefit of the deceased, as they passed away before it was paid,” the ATO stated.
“The final beneficiaries of the deceased’s superannuation death benefit are not death benefits dependants.”
In separate news from the ATO, it announced reforms to the treatment of the transfer balance cap for a successor fund transfer would take place after the Income Tax Assessment Amendment (Superannuation) Regulations 2024 had been registered, with a commencement date of 6 July 2024.
“The regulations specify changes to the treatment of the transfer balance cap for successor fund transfers and will ensure individuals with a capped defined benefit income stream are not adversely impacted in the event of a successor fund transfer between superannuation funds,” it stated in an update on its website.
“From 6 July 2024, for the purposes of the individual’s transfer balance account, a new income stream beginning as a result of a successor fund transfer will have the same beginning value as the closing value of the original income stream.”
