Highlights

  • ATO private binding rulings 7915169902780 and 1052407683383 both turn on what the trustee knew at the time of payment.
  • A payment made when the fund was unaware of a member's death is treated as a member benefit, not a death benefit.
  • SMSF trustees are far more likely to know of a member's death immediately, making a death benefit classification more probable.
  • Adult non-dependant children face tax of 15% or 30% on the taxable component of a death benefit received from a super fund.

Two private binding rulings from the ATO illuminate a question that arises when a superannuation payment is made to or for a member who dies around the time of withdrawal. The classification of the payment as a member benefit or a death benefit is determined by what the trustee knew at the moment the payment was made.

The Test Is Trustee Knowledge at Payment Time

Private binding rulings 7915169902780 and 1052407683383 both establish that the classification of a superannuation payment, whether as a member benefit or a death benefit, depends on what the trustee of the fund knew when the payment was made. A payment processed before the trustee became aware of the member's death is treated as a member benefit, carrying the tax treatment applicable to a living member's withdrawal.

Both rulings involved APRA-regulated funds rather than SMSFs. In a large APRA fund, administration processes can mean that payments are queued and processed without the fund becoming aware of a member's death in real time. A payment that passes through that process before notice of death arrives at the fund can therefore retain its character as a member benefit.

Why SMSFs Are Different

The APRA fund situation is unlikely to apply in most SMSFs. SMSF trustees are typically the members themselves or close family members, which means they will almost always become aware of a member's death immediately or within a very short time. A payment made after death in an SMSF context is therefore far more likely to be classified as a death benefit, even if it was initiated before death.

This distinction between APRA funds and SMSFs is practically significant for planning. The rulings provide a framework but should not be read as offering a straightforward template for SMSF trustees to characterise a payment as a member benefit simply because it was initiated before death.

Tax Treatment for Non-Dependant Children

When a death benefit is paid to an adult child who was not financially dependent on the deceased member, the taxable component of the benefit is subject to tax. The rate is 15% for the taxed element of the taxable component and 30% for the untaxed element. These rates apply regardless of the relationship, provided the recipient is not a dependant under the superannuation law definitions.

FLAG: The two private binding rulings referenced in the source article involved APRA-regulated funds, not SMSFs. The principles they establish may apply differently in an SMSF context.