ATO clarifies position on key post-reform issue

The ATO has responded to heightening concerns about the treatment of death benefit income streams ahead of 1 July, promising further guidance and outlining how its related compliance action will be applied.

The ATO’s position is that a death benefit income stream can’t be commuted and moved back to accumulation phase under the existing law, the tax office’s assistant commissioner for superannuation, Kasey Macfarlane, told SMSF Adviser.

However, she acknowledged that there has been uncertainty in the SMSF sector about this issue, and some practices have evolved over time where death benefit income streams have been commuted and placed back into an accumulation phase. 

To wholly address this issue, the ATO will issue a practical compliance guideline (PCG) in the coming weeks to answer industry concerns about these practical issues

“The PCG will outline that we will not focus compliance activities on instances under the existing law where an income stream has been commuted and placed back into accumulation phase if the income stream had ceased to be a death benefit income stream and was a member benefit income stream for income tax purposes,” Ms Macfarlane said.  

“This approach will not continue after the new law comes into effect on 1 July. Under those provisions, a death benefit income stream cannot be commuted and placed back into an accumulation phase. In other words, death benefits are not intended to be and cannot be retained in the superannuation system and are required to be paid out to beneficiaries under the new law.”

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