A legal specialist has suggested the treatment of a benefit payment request made shortly before the relevant member dies but not processed will ultimately be tested in court by a beneficiary who perceives themselves as having been penalised due to the classification of the transaction.
“This issue will be litigated, one day, by a beneficiary who will be worse off because they’ll want it to be [treated] as a death benefit, [whereas a different individual] will want it to be paid out [to them via a member drawdown],” Sladen Legal principal Phil Broderick told delegates at The Tax Institute National Superannuation Conference recently held in Sydney.
However, Broderick noted the ATO has signalled its intention to treat member benefit requests that have not been processed before the person in question has passed away as a death benefit when the trustees finally complete the transaction.
He did indicate the regulator will make exceptions to this stance in particular specific circumstances.
“The only exception to this rule in its view is [when the trustees have] effectively done everything [they can and the process is] irrevocable,” he said.
“So if you want a successful PBR (private binding ruling) on this, you’ve really go to focus on [proving you’ve done] everything you can and you can’t really reverse it. [Effectively you have to show] the train’s in motion now and you can’t stop it anymore.”
A session attendee confirmed this was the case from their experience and that the classification of a member benefit request escaping the definition of being a death payment may not be absolute if the process is not completed in a timely manner.
“[In one situation it was decided the payment should be treated as a member benefit, but the trustees] still hadn’t paid the money out even though it was six or eight months after death. That was weird as a member payment and we [asked:] ‘What date did you pay the cash out?’ and they said we still haven’t [done so],” the individual said.
The classification of the payment remained unchanged though as the trustees demonstrated they had done everything they could in good faith to have the process completed.
