Written by

Mark Ellem

The ATO has recently provided an update on their view of whether a payment will be treated as a superannuation member benefit or as a superannuation death benefit where a member dies after they have requested a benefit, but before the actual benefit payment by the superannuation fund².

Whether a benefit payment is treated as a member benefit or a death benefit will determine the tax outcome and whether it is subject to member benefit death benefit directions, e.g., binding death benefit nomination, or trustee discretion. However, this latest update from the ATO has the potential to open a pandora’s box and lead to legal challenges.

What’s the issue?

Where a member dies after they have requested a benefit payment, but prior to the trustee(s) of the fund effecting the benefit payment, is the benefit payment a member benefit or a death benefit?

There are two areas of concern in respect to this issue:

  • tax treatment of the benefit payment
  • estate planning implication for who will ultimately receive the benefit payment

The ATO’s (latest) view

The ATO’s view on whether a benefit payment in this scenario is to be treated as a member benefit or a death benefit has evolved over time. There have been a number of Private Binding Rulings on the topic for which have produced contradictory outcomes.

Attendees of the SMSF Association National Conference were made aware of the ATO’s latest view via a presentation from Peter Burgess, the association’s Deputy CEO/Director of Policy and Education. He conveyed to attendees that in discussions between the Association and the ATO, that they had advised their position to be that a benefit payment should be treated as a member benefit where the member has requested the benefit payment prior to their death, despite the benefit being paid after their death.

The apparent linking of a member’s request for a benefit and it being regarded as paid is interesting and could open a pandora’s box of implications for other benefit payments. To find out more about the issue and the implications of the ATO’s view, and to explore a case study, read our latest technical article here.

2. SMSF Association National Conference 2022, Peter Burgess, Deputy CEO/Director of Policy & Education, SMSF Association session 20 April 2022

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