The ruling (5010107482037) was asked to determine if the withdrawal from a member’s account that was requested shortly before their death but received after their death in a lump sum could be classified as a superannuation member benefit under subsection 307-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997).
The Commissioner of Taxation heard that the member was over 65 years old at the date of their death and held one superannuation account which was an account-based pension in pension phase.
The member resided with their adult child as they required daily care and supervision due to declining health. The child (administrator) was granted power of attorney. The member was admitted to hospital and it was assumed at the time they would recover and return home.
The facts continued that the administrator contacted the member’s super fund via phone to request the closure of the member’s superannuation account, which was granted without the requirement to lodge a paper or portal request as stated in an email after a request for further information was issued.
A short time after the administrator requested via phone to the member’s super fund, the member passed away in hospital. The super fund issued a letter to the member advising the lump sum amount and pension amount had been deposited in their nominated account and the superannuation account was closed.
Payment of the benefits from the fund were deposited into the member’s bank account four days after their death and it appears that the fund was not aware that the member had passed away.
The administrator closed the member’s bank account and all funds have been transferred to a solicitor’s trust account pending distribution to beneficiaries of the member’s last will and testament.
The Commissioner ruled that the benefit of a lump sum and pension amount paid from the member’s account as requested shortly before their death but received in their bank account after their death is a superannuation lump sum and is a straightforward application of subsection 307-65(1) ITAA 1997.
“An amount that a member requested to be paid from their superannuation fund before their death, but was paid after their death, may be classified as a member benefit instead of a death benefit depending on the facts and circumstances of the payment,” the ruling said.
“A trustee of a regulated superannuation fund can only pay superannuation benefits according to the fund’s governing rules, including the fund’s trust deed and relevant legislation. These governing rules set out when benefits can be paid and who they can be paid to, including after a member’s death. A superannuation fund’s governing rules must be read carefully to determine a member’s benefit entitlements in the event of death.”
At the time the administrator submitted the payment request, it said, the member had already satisfied a “nil” condition of release (attaining the age of 65 years and their superannuation benefits had been converted to unrestricted non-preserved benefits).
This meant they were entitled to voluntarily cash their benefits at any time (consistent with subregulation 6.20(1) of the Superannuation Industry (Supervision) Regulations), cash the whole or a part of their benefits (consistent with subregulation 6.20(2) of the SISR), and cash the benefits as one or more lump sums (paragraph 6.20(3)(a) of the SISR) or one or more pensions (paragraph 6.20(3)(b) of the SISR).
“The SISR also permitted the release of superannuation benefits when the member met the ‘nil’ condition of release of death. Subregulation 6.21(1) of the SISR states that a member’s benefits in a regulated superannuation fund must be cashed as soon as practicable after the member dies,” the ruling said.
“Considering the facts, at the time of the payment of the lump sum benefit:
• We assume that the benefits were paid in accordance with the fund’s trust deed and other governing rules.
• The lump sum benefits were paid to the member’s personal bank account in accordance with a valid request made by the administrator (on the member’s behalf) prior to their death.
• The superannuation fund was not aware of the member’s death before it paid the lump sum benefits.
• The lump sum was paid into the member’s personal bank account, as the Trustee was unaware of the Member’s death and payment of the lump sum was paid four days after the event, it can be said that the trustee made the payments with the expectation that the member would be alive to receive it.”
It concluded that it is therefore reasonable to treat the total superannuation lump sum benefit as a superannuation member benefit and the tax treatment in Division 301 of the ITAA 1997 should apply.
Perhaps if the accountant had read ATO ID 2014/22 he could have saved the cost of a PBR assuming the child would receive the death benefit and if not the will had a streaming clause to allow it.