Death benefit guidance ‘not fit for purpose’

The updated guidance provides examples to explain in what circumstances a benefit will be a member benefit or a death benefit where a member has requested an amount to be paid from their fund before they died but died before they received it.

The guidance emphasises the importance of factors such as whether the trustee was aware that the member had died and whether the money was paid to the account of the member or their legal personal representative.

Commenting on the recent guidance, SMSF Alliance principal David Busoli said the updates to QC 45254 do nothing to enhance certainty or “provide a basis for practical, uncontentious outcomes”.

“Essentially the release indicates that the benefit will be paid as a member benefit if the trustee does not know the member has died, and a death benefit if they do. The tax differences can be considerable,” said Mr Busoli.

He noted a number of private binding ruling on the matter in the past few years have determined that the benefit in these sorts of circumstances will be a member withdrawal, not a death benefit, irrespective of the trustee’s knowledge of the member’s death.

“The trustee’s knowledge of the death did not even rate a mention [in the private binding rulings].”

Mr Busoli said the superannuation industry was expecting a simple determination from the ATO, “one way or the other.”

“Even the example raises doubt as it states that “the trustee of the SMSF knew Jack had passed away before authorising the payment”. Does this mean that, if the payment had been authorised before the member had passed, it would have been a member withdrawal?” he questioned.

“This determination is not fit for purpose and needs replacing.”

The ATO had previously reached a settled position that it should be treated as a member benefit and issued a number of private binding rulings last year supporting this view.

Accurium head of education Mark Ellem said this latest update now appears to contradict the settled position that was reached by the ATO last year.

Mr Ellem said being aware of whether the member has died or not appears to be a new and vitally important consideration.

“It would be interesting for the ATO to apply this new approach to all of the previously determined PBRs to see if the outcome would still be the same,” he stated.

Mr Ellem said until there is more definitive guidance that can be relied upon confidence such as an ATO ruling, rather than an update on a webpage, it “would be prudent to consider either obtaining specialist legal advice or applying for a PBR, as suggested by the ATO, in relation to a superannuation fund benefit payment in these circumstances”.