The ruling (1052292018496) deals with a taxpayer who was the sole member of a complying superannuation fund. The taxpayer had a binding death benefit nomination that directed the fund’s trustee to pay the superannuation benefits to the taxpayer’s legal personal representative (the estate).
Following the taxpayer’s passing, the fund paid the lump-sum death benefit payment to the estate, and probate was subsequently granted, and the estate was administered in accordance with the taxpayer’s will, which specified that the superannuation death benefit was to be paid to a charity.
The ruling stated that section 302-10 of the Income Tax Assessment Act 1997 (ITAA 1997) applies to the superannuation death benefit paid to the trustee for the taxpayer by the fund.
“The tax treatment of a superannuation death benefit under section 302-10 of the ITAA 1997 depends on whether the beneficiary of the estate that benefits, or is expected to benefit, from the superannuation death benefit is a death benefits dependant (subsections 302-10(2) and (3) of the ITAA 1997),” the ruling said.
The meaning of death benefits dependant is provided in section 302-195 of the ITAA 1997, which states that “a death benefits dependant, of a person who has died, is:
“(a) the deceased person’s spouse or former spouse; or
“(b) the deceased person’s child, aged less than 18; or
“(c) any other person with whom the deceased person had an interdependency relationship under section 302-200 just before he or she died; or
“(d) any other person who was a dependant of the deceased person just before he or she died.”
“[The taxpayer’s] will specifies that the amount received from the superannuation fund is to be applied by the trustee of the estate in the making of a testamentary gift to the charity. The charity is not a death benefits dependant under section 302-195 of the ITAA 1997,” it said.
Additionally, the ruling continued that subsection 302-145(1) of the ITAA 1997 states that “if you receive a superannuation lump sum because of the death of a person of whom you are not a death benefits dependant, the taxable component of the lump sum is assessable income”.
Furthermore, subsection 302-145(2) of the ITAA 1997 states that “you are entitled to a tax offset that ensures that the rate of income tax on the element taxed in the fund of the lump sum does not exceed 15 per cent”.
It concluded that section 302-10 of the ITAA 1997 does apply to the superannuation death benefit paid by the fund to the estate.
“As no beneficiary is presently entitled to the superannuation death benefit paid to the estate (paragraph 302-10(3)(b) of the ITAA 1997), the death benefit is taxed in the hands of the estate. The estate will be required to pay tax on the taxable component in accordance with section 302-145 of the ITAA 1997,” it said.
“It is also to be noted that subsection 30-15(2) of the ITAA 1997 states that a testamentary gift or contribution is not deductible under the gift deduction rules in division 30 of the ITAA 1997.”
It is a Superannuation Death Benefit, and the Executor / Administrator would treat and calculate the tax and pay in the normal course of Estate Administration. The net proceeds then form part of the estate assets.
This seems to be an incorrect determination. The superannuation was not paid directly to any beneficiary, it was paid to the estate pursuant to a BDBN. Once incorporated into the assets of the estate it is no longer a death benefit it is just a part of the estate assets. The reference to the amount received from the superannuation fund is not a direction to the fund nominating a beneficiary or if it was it was overridden by the BDBN. Perhaps the Will could have been drafted nominating a particular sum or a percentage of the estate, but nevertheless the fund acted in accordance with the BDBN and not in accordance with the Will. The Trustee of the estate acted in accordance with the Will and this payment was not a superannuation death benefit.
I believe this is incorrect. If the benefit received by the LPR is NOT paid to a tax dependent then the LPR should withhold the DBT at 15% (as opposed to 17%) if it went from the super fund directly to the recipient.
The trustee (LPR) is liable for the tax and is required to remit it to the ATO.