Is the payment of a death benefit to a spouse’s estate tax free? The Australian Taxation Office (ATO) has released a Private Binding Ruling 1052273158502 (PBR) in which it determined that it was not under section 302-10(2) of the Income Tax Assessment Act 1997 (ITAA 97).

In the facts laid out in the PBR, when the deceased died, the spouse was his sole beneficiary. Before the death benefit was paid to the spouse, the spouse then died. The super fund trustee ultimately paid the death benefit to the spouse’s estate. The beneficiaries of the spouse’s estate were not death benefit beneficiaries of the deceased.

If the death benefit had been paid to the spouse, then the death benefit would have been tax free on the basis that she was a death benefit beneficiary. The question was, therefore, whether it would also be tax free if it was paid to her estate.

In the PBR, the ATO determined, as the deceased spouse could no longer benefit from the death benefits of the deceased, and the final beneficiaries of the estate of the spouse were all not death benefit dependants of the deceased, section 302-10(1) of the ITAA 97 could not apply to make the payment to the spouse’s estate tax free.

This is an interesting decision. The spouse’s estate is not a permitted beneficiary of the deceased (rather the permitted beneficiaries include the spouse and the deceased’s estate). Therefore, the payment to the spouse’s estate could only be made on the basis that the payment is effectively going to the (representative) of the spouse and therefore could be said to be a tax free death benefit to a death benefit beneficiary.

However, section 302-10 does not confine itself to a payment to the deceased’s estate but, rather, a payment to any estate. Therefore, the ATO applied the look through approach to the spouse’s beneficiaries. Given they were not death benefit beneficiaries of the deceased, the death benefit was determined not to be tax free.

Phil Broderick
Principal
T +61 3 9611 0163  l M +61 419 512 801  
E pbroderick@sladen.com.au    

Terence Wong
Senior Associate
T +61 3 9611 0112 l M +61 0458 846 022
E twong@sladen.com.au