There is some good news and some bad news with the ATO’s release of Practical Compliance Guide PCG 2017/6. The good news is that spouses in receipt of death benefit pensions may commute their death benefit pensions in excess of the transfer balance cap back into accumulation before 1 July 2017. The bad news is that this concession does not apply to non-spouses and won’t apply after 30 June 2017.
PCG 2017/6 confirms the ATO’s view that death benefit pensions cannot be commuted back into accumulation due to the compulsory cashing requirements. However, the ATO will permit a spouse to commute their death benefit pensions provided the commutation occurred prior to 1 July 2017. This may have occurred, for example, in the past where a death benefit pension was commuted and combined with member benefits to form a combined pension. It could also happen where a spouse wishes to commute their pension in order to comply with the $1.6 million transfer balance cap.
- It is important to note the following about PCG 2017/6:
- It only applies prior to 1 July 2017 – after that date death benefit pensions cannot be commuted back into accumulation
- It only applies to spouses – if won’t apply to other death benefit pension beneficiaries such as children and non-spouse financial dependents and interdependents
- The commuted death benefit must be able to be taxed as a member benefit under section 307-5(3) of the Income Tax Assessment Act 1997 – that is the death benefit pension must be commuted after the later of 6 months after the death of the member or 3 months after probate
- The commuted amount must then be taxed as a member benefit rather than a death benefit
To discuss this further or for more information please contact: