Tax certainty for beneficiaries of superannuation death benefits
The Minister for Financial Services has released a draft regulation – currently entitled Draft Income Tax Assessment Amendment Regulation 2013 (No ) – to give effect to the Government’s 2012–2013 Mid-year Economic and Fiscal Outlook announcement that it will provide tax certainty to beneficiaries of superannuation death benefits. Public consultation closed on 14 February 2013.
Under taxation laws, investment earnings derived by super funds from assets supporting pensions are exempt from tax. A draft ruling issued by the ATO in 2011 (Draft Taxation Ruling 2011/D3) led to some uncertainty over eligibility for this tax exemption following the death of a member to whom a pension was being paid. To address these concerns, the Government announced on 22 October 2012 that it will amend the law to allow the pension earnings tax exemption to continue following the death of a pension recipient until that deceased member’s benefits have been paid out of the fund (subject to the requirement that benefits be paid as soon as practicable).
Sections 295-385 and 295-390 of the ITAA 1997 broadly provide that a complying superannuation fund is entitled to an exemption for so much of its income as is supporting current liabilities in respect of superannuation income stream benefits payable by the fund at the particular time (ie the earnings tax exemption). The term “superannuation income stream benefit”is defined in Reg 995-1.01 of the Income Tax Assessment Regulations 1997.
The proposed Regulation will expand the meaning of the term “superannuation income stream benefit” in the regulations for the purposes of the earnings tax exemption. The proposed expanded meaning is designed to ensure that, where a complying superannuation fund member who receives a superannuation income stream dies, and that income stream does not automatically revert to another person on the member’s death, the superannuation fund continues to be entitled to the earnings tax exemption in the period from the member’s death until his or her benefits are cashed by the fund (subject to the requirement that benefits be cashed as soon as practicable).
Date of effect
The Regulation, once finalised, will be taken to have commenced on 1 July 2012, and the amendments expanding the meaning of “superannuation income stream benefit” will apply in relation to the 2012–2013 and later income years.
Sources: Treasury draft regulation and associated explanatory material, “Tax certainty for deceased estates”, 29 January 2013, www.treasury.gov.au/ConsultationsandReviews/Submissions/2013/Tax-certainty-for-deceased-estates;
Minister for Financial Services media release No 001, 29 January 2013, http://ministers.treasury.gov.au/DisplayDocs.aspx?doc=pressreleases/2013/001.htm&pageID=003&min=brs&Year=&DocType=.
