The Australian Taxation Office (ATO) has set out its view in ATO Interpretative Decisions, ATO ID 2015/2 and ATO ID 2015/3 that the superannuation laws and tax laws prohibit superannuation death benefits from being paid by mere journal entries.

In the ATO IDs, the taxpayer/beneficiary and self managed superannuation fund (SMSF) trustee wished to effect the death benefit to the beneficiary by the transfer of money from the deceased member's account, to the beneficiary's own account in the SMSF by way of journal entry (to save on transactions costs). The ATO noted that set offs can occur in a superannuation context, but that there needs to be “mutual liabilities between the taxpayer and the SMSF and there is an agreement between those parties to set-off the liabilities”. Here, the ATO found there was “not a mutual liability in this case as the taxpayer does not have a liability to the SMSF”.

Therefore, any SMSF beneficiaries in this situation would need to either ensure the benefits are paid in the form of a pension (if that is possible), or paid out and then contributed back in, or, if a set off is to occur, that there are mutual obligations (an example of a beneficiary obligation could be a legally binding obligation to make a contribution).

For further information please contact:

Phil Broderick
Principal
Sladen Legal
03 9611 0163
pbroderick@sladen.com.au