ATO provides guidance on payment of death benefit rollovers

The ATO said that a transferring fund is still required to apply section 307-290 of the ITAA 1997 to determine if there is an untaxed element in the lump sum being rolled over where they have claimed, or will claim in relation to the benefit, deductions for premiums for certain types of insurance under section 295-465 or 295-470 of the ITAA 1997.

“However, where a dependent beneficiary rolls over a death benefit, it is the commissioner’s view that there is insufficient connection between any deductions claimed by the transferring fund and any lump sum benefits paid by the receiving fund from the dependent beneficiary’s new pension interest, for section 307-290 of the ITAA 1997 to apply to any of those subsequent payments,” the ATO stated.

“That is, where the receiving fund does not claim any deductions for any death and disability insurance offered to the dependent beneficiary as part of their new pension interest in the receiving fund, section 307-290 of the ITAA 1997 will not apply to any lump sums paid from that interest.”

Reporting death benefit rollovers

When completing item 16 of the death benefits rollover statement, the ATO said it is not necessary for funds to include an element untaxed in the fund.

Any amount that is determined under section 307-290 can be reported as a taxable component – element taxed in the fund, the Tax Office said.

It added that when completing the death benefit rollover statement, it is only necessary to report a taxable component – element untaxed in the fund to the extent it is not determined pursuant to section 307-290 of the ITAA 1997.

The ATO explained that where a receiving fund has received a rollover death benefit, the dependent beneficiary’s interest in the receiving fund will only comprise the tax-free component and the taxable component.

“This is the case regardless of whether an untaxed element has been reported in the rollover benefit statement or not,” it stated.

Where the receiving fund does not claim any deductions for insurance premiums under section 295-465 or 295-470 of the ITAA 1997 in respect of the dependent beneficiary as part of their new interest, the ATO said section 307-290 of the ITAA 1997 will not apply to any superannuation lump sum paid from the superannuation interest.

“The lump sum may comprise solely tax-free component and taxable component – taxed element,” it said.

“Where the receiving fund claims a deduction for insurance premiums under section 295-465 or 295-470 of the ITAA 1997 in respect of insurance offered to the dependent beneficiary as part of their new interest, the fund will be required to apply section 307-290 of the ITAA 1997 to any subsequent death benefit lump sums paid from that interest.”

The ATO also provided further clarification on the payment of a death benefit from an interest where a fund reported an untaxed element on or after 1 July 2017.

“A fund may have previously received a rollover benefit statement reporting an untaxed element,” it stated.

“Where the receiving fund can clearly ascertain that the rollover was from a fully taxed fund and the untaxed element was only reported due to it being determined in accordance with section 307-290 of the ITAA 1997, the trustee can treat this amount as being a taxable component – element taxed in the fund back to the date of the rollover.”