Shortly before the member’s death after a period of illness, an application form was posted to the superannuation fund to withdraw all funds from the member's account. The application form was downloaded from the superannuation fund's website and submitted via post by power of attorney.

It was assumed at the time that while in ill health, the member would live longer and the funds were withdrawn in order to invest elsewhere for better returns.

Receipt of the withdrawal request was confirmed by the superannuation fund by email to the member confirming the withdrawal request was now being processed. The day after the superannuation fund confirmed the request was being processed, the member passed away.

The lump sum was deposited into the member's personal bank account four days after their death. The day after the funds were deposited, the superannuation fund issued a letter to the member advising that funds had been deposited into the member's nominated bank account and that the income stream was now closed.

The letter confirmed the member didn't have to pay tax on this payment or include it in their tax return. A superannuation fund exit statement was enclosed confirming the exit date, the net benefit payable and the amount of PAYG withheld. It appears that the superannuation fund was not aware that the member had passed away.

In its ruling, the tribunal stated that as the member was over 65 at the date of their death they had already satisfied the condition of release, which has “nil” cashing restrictions.

“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,” it stated.

“The member's death 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 dependants (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.”

It continued the benefit 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 stated.

“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.”

Furthermore, it continued that at the time the member submitted the payment request, they 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:

a. voluntarily cash their benefits at any time (consistent with subregulation 6.20(1) of the SISR);

b. cash the whole or a part of their benefits (consistent with subregulation 6.20(2) of the SISR); and

c. 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).

“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 superannuation fund's trust deed and other governing rules,” it stated.

“The lump sum benefits were paid to the member's personal bank account in accordance with a valid request made by the administrator by power of attorney and on the member's behalf, before prior to the member's 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 and 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 payment with the expectation that the member would be alive to receive it.”