If a member calls for a super benefit before they die but pass away before it is paid, when it is subsequently paid to the deceased member’s account, is the payment a (tax free) member benefit or a (taxable) death benefit?
The Australian Taxation Office (ATO) recently released its edited version of private binding ruling 1051598540809 on this question in the circumstances where the member, having met a condition of release, submitted their request for payment of superannuation benefits a few days before passing away. The deceased member’s super fund processed the request shortly after and made payment to the deceased’s bank account as a lump sum rather than a death benefit lump sum.
In its ruling, the ATO confirmed that, while the benefit should ultimately form part of the deceased’s estate, it was to be treated as a member benefit not a death benefit. The ATO noted that superannuation death benefit is defined in section 307-5 of the Income Tax Assessment Act 1997 as ‘A payment to you from a superannuation fund, after another person's death, because the other person was a fund member.’ As the payment was made to the deceased member in their own capacity as a member of the fund, it did not meet the definition of a superannuation death benefit.
This ruling, whilst not binding, is an important decision for members for whom death is known to be imminent, have met a condition of release and desire that their benefits form part of their estate. In such circumstances, those members (or potentially their attorneys) could call for their benefits to be paid to them with the result that the subsequent payment could be a tax free member benefit (assuming they’re aged 60+) rather than a taxable death benefit (assuming the death benefit would have been paid to a non-death benefits dependant).
Phil Broderick
Principal
T +61 3 9611 0163 l M +61 419 512 801
E pbroderick@sladen.com.au
Edward Morcombe
Graduate Lawyer
T +61 9611 0165
E emorcombe@sladen.com.au
Melissa Colaluca
Senior Associate
T +61 3 9611 0161
E: mcolaluca@sladen.com.au
Philippa Briglia
Senior Associate
T +61 3 9611 0173
E pbriglia@sladen.com.au
