Late last week, the ATO released ATO ID 2015/2 and ATO ID 2015/3, which consider basically identical facts, said DBA Lawyers director Bryce Figot.
“The benefits of the deceased member consisted of publicly listed shares and cash. The [spouse of the deceased and other member of the SMSF] wishes to remain in the fund and to recontribute the death benefit directly to their member account. In order to avoid transaction fees, the [spouse] wishes to know whether it is possible to transfer the monies from the deceased member's account to the taxpayer's own account by way of journal entry,” the ATO stated.
In ATO ID 2015/2, the ATO considers whether the facts constitute a payment of a ‘superannuation death benefit’ for the purposes of s 307-5(1) of the Income Tax Assessment Act 1997, Mr Figot said.
In ATO ID 2015/3, the ATO considers whether the facts constitute a payment for the purposes of reg 6.21 of the Superannuation Industry (Supervision) Regulations 1994 (SISR).
The ATO answered the questions in both ATO ID 2015/2 and ATO ID 2015/3 with a no, Mr Figot said.
He explained that in ATO ID 2015/3, the ATO links payment with cashing and states.
“Cashing involves an SMSF making a payment which reduces the member's benefits in the fund. Consequently, transferring the shares and cash to the taxpayer's account from the deceased member's account via a journal entry would not amount to 'cashing' the benefits, and therefore, regulation 6.21 of SISR would not be satisfied,” the ATO stated.
Mr Figot said the reasoning in ATO ID 2015/2 “raises a more interesting question,” with the ATO canvassing what is often referred to as the principle in Spargo’s case.
“In Spargo's it was held that a payment will occur where two parties both have a present liability or legal obligation to the other (mutual liabilities or mutual obligations) and they make an agreement and set off the liabilities against each other using a book entry,” the ATO stated.
The ATO determined in ATO ID 2015/3 that the principle did not apply, noting, based on the principle in Spargo's, a journal entry will only constitute a payment if there are mutual liabilities between the taxpayer and the SMSF and there is an agreement between those parties to set off the liabilities.
“There is not a mutual liability in this case as the taxpayer does not have a liability to the SMSF,” the ATO stated.