Written by

Mark Ellem

Around this time last year, the ATO provided their view on the scenario where a member had requested a benefit payment but died prior to it being paid. The issue was whether the benefit payment would be treated as a member benefit or as a superannuation death benefit. Almost twelve months on and the ATO has updated their website on this issue which appears to be a reversal of their view from last year. 

Prior to the update to the ATO’s website, it was understood that the ATO’s “settled position” was 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 death1. There were also many Private Binding Rulings (PBRs) on this issue that had different outcomes. 

The update to the ATO’s website2 makes the following statement: 

If a member requested an amount to be paid from their fund before they died, but died before they received it, it may be a member benefit in some limited cases. This is determined by the facts and circumstances surrounding the payment’.

The statement appears to imply that where a member requests a benefit payment prior to their death, but it is paid after their death, that it will only be a member benefit in “limited circumstances”. That is, most times it will be a superannuation death benefit, contrary to the interpretation of the ATO’s view from last year. Considering the ATO examples provided on the website, one is a situation where the member who dies was a member of an SMSF and the other for an APRA regulated fund, it would appear that in an SMSF, the benefit will be a superannuation death benefit as it is likely that the trustee(s) making the benefit payment would be aware that the member has died. 

Whilst there are several PBRs that provide for different outcomes, for the majority the benefit payment was determined to be a member benefit and not a superannuation death benefit where: 

  • The member requested the benefit payment prior to their death; and 
  • The fund paid the benefit payment to the member’s personal bank account. 

However, the PBRs did not consider:

  • The timing of when the fund trustee(s) approved or resolved to pay the benefit and whether the member was alive at that time; or 
  • Whether the fund trustee(s) were aware that the member had died at the time of payment of the benefit. 

Being aware of the whether the member has died or not appears to be a new, but vitally important consideration. It would be interesting for the ATO to apply this new approach to all of the previously determined PBRs to see if the outcome would still be the same.

It must be remembered that PBRs are only binding on the applicant and the ATO’s website does not have the force of law. It is noted that the update to the ATO’s website does suggest that For guidance on your specific circumstances, you can apply for a private ruling’, however, given the apparent weighting to the trustee’s awareness of the member’s death at the time of payment, such an application may academic. 

It should also be noted that PBRs only focus on the tax issues, as the ATO can only issue a PBR on tax matters. They have not addressed the estate planning consequences of whether a benefit payment is a member benefit or a superannuation death benefit. Whilst there may be a better tax outcome for treating a benefit payment one way or the other, it may not result in all (potential) beneficiaries seeing it that way. 

From an income tax perspective, until there is more definitive guidance that can be relied upon with confidence, e.g. an ATO ruling, not just an update to a webpage that could simply disappear (remember the webpage that dealt with failing to pay the minimum pension for a death benefit pension – where did that go?), it would be prudent to consider either obtaining specialist legal advice or applying for a PBR (as suggested by the ATO) in relation to a superannuation fund benefit payment in these circumstances. 

Our previously written article on this issue, ‘ATO’s clarification on benefit types a pandora’s box’ (issued 25 May 2022) has been updated to incorporate the recent update to the ATO’s website. This is where the updated article can be accessed: ‘ATO latest guidance on benefit types – a shift in perspective’. 

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