However, the private binding ruling (1052522340736) also stated the a lump sum amount from the sale of investment units from an SMSF to a member, requested before the member’s death but received after their death, is not a superannuation member benefit under subsection 307-5(2) of the ITAA 1997.
The ruling dealt with a member who was aged over 65 at the time of their death and held two accounts within their SMSF. The member had no death benefits dependents for the purpose of the ITAA 1997 and was the sole director of the corporate trustee at the time of their death.
The member verbally requested their POA to draft two letters to authorise their accountant to wind up the SMSF and provide an overview of the instructions they authorised their children to undertake.
The member also had written a letter authorising their children to sell all the shares and to make member payment(s) to the member account and wind up the SMSF.
On Date A, two lump sum amounts were transferred from the trustee account into the member’s personal account as was verbally instructed by the member. The investment units were sold on the day the member passed away under instructions from the POA.
The member passed away on Date A. The Legal Personal Representative then transferred amount(s) from the sale of the units received on Date B from the SMSF account to the member’s personal account on Date C and Date D respectively.
The ruling stated that the member was over 65 at the date of their death and had therefore satisfied the condition of release in Schedule 1, item 106 of the table in Part 1 of the Superannuation Industry (Supervision) Regulations 1994 (SISR).
This condition of release has “nil” cashing restrictions and under regulation 6.12 of the SISR, the member’s benefits were all converted to unrestricted non-preserved benefits upon meeting a condition of release with ‘nil’ cashing restrictions.
Under subregulation 6.20(1) of the SISR, a member’s unrestricted non-preserved benefits in a regulated superannuation fund may be voluntarily cashed at any time. As per sub regulations 6.20(2) and (3) of the SISR, the whole or a part of the member’s unrestricted non-preserved benefits may be cashed as one or more lump sums or one or more pensions.
It continued that the member’s death on Date A then resulted in them meeting the condition of release in Schedule 1, item 102 of the table in Part 1 of the SISR. This condition of release also has ‘nil’ cashing restrictions.
Under subregulation 6.21(1) of the SISR, a member’s benefits in a regulated superannuation fund must be cashed as soon as practicable after the member dies. Paragraph 6.21(2)(a) dictates that benefits must be cashed as single lump sums or as an interim and final lump sum for non-dependants; only dependents (for SISR purposes) may cash benefits in the form of a superannuation income stream in the retirement phase, as per paragraph 6.21(2)(b) and subregulations 6.21(2A) and (2B) of the SISR.
“The benefit paid from the member’s account as requested shortly before their death on Date A and received in their bank account on Date A is a superannuation lump sum. This is a straightforward application of subsection 307-65(1) ITAA 1997,” the ATO said.
“The benefit paid from the member’s account as requested shortly before their death on Date A but received in their bank account after their death on Date C and Date D, is a superannuation death benefit. This is a straightforward application of subsection 307-65(4) ITAA 1997.”
It continued that an amount 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.
“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,” the ruling stated.
It continued: “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.
“The trustee of the superannuation fund must assess whether the amount that the member requested to be paid is a member benefit or a death benefit based on the facts known at the time of the payment.”
At the time POA submitted the payment request, the member had already satisfied a “nil” condition of release and their superannuation benefits had been converted to unrestricted non-preserved benefits.
They were thus entitled to:
- voluntarily cash their benefits at any time (consistent with subregulation 6.20(1) of the SISR);
- 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 continued that considering the facts, at the time of the payment of the lump sum benefit(s) the POA completed a cash transfer from the trustee account to the member’s personal account, as requested on Date A while the member was still in hospital and able to give guidance of their directives.
The POA requested the sale of the investment units on Date A and payment from the investment units was received into the SMSF on Date B.
However, the transfer of the lump sum from the sale of the investment units from SMSF account to the member account did not occur until Date C and Date D. With no established reason for delay in transferring the funds as requested by the member prior to their death.
Per the ruling, “[It] is established that the LPR and POA were aware the member had passed away when this transaction took place, some months after the member’s death.
“It is reasonable to treat the total superannuation lump sum benefit that was received into the member’s personal account on Date A, as a superannuation member benefit. The tax treatment in Division 301 of the ITAA 1997 should apply to the benefit.
“It is also reasonable to treat the total superannuation lump sum benefit from the sale of the investment units, that was received on Date B but not paid to the member’s personal account until Date C and Date D as a superannuation death benefit. The tax treatment in Division 302 of the ITAA 1997 should apply to the benefit.”
