Could Death Benefit Tax Have Been Avoided?

18 Jan 2024

Written by

David Busoli, Principal

A recently released private binding ruling PBR 1052179436983 confirms our conclusions regarding QC 42473 and QC 45254.

A member, facing imminent death, instigated a member withdrawal, which due to reasonable administrative processes, was not paid out of the fund until after death. Essentially the ATO’s view is, if this occurs, the benefit is not a member withdrawal but a death benefit. The major exception is if the trustee was not aware the member had died which will never be the case with an SMSF.

The result was that the benefit was not tax free but subjected to death benefit tax as the beneficiaries were not tax dependants.

Perhaps there could have been a different result. The delay occurred due to the redemption of investments. As SMSF benefits can be paid in specie, in a dire situation such as this, the trustees could have signed the asset transfer forms at the outset. Transfer is effective from the date of signing of a valid transfer form so the member would have received a member benefit before passing. Cash would need to have been paid out prior to passing but, presumably, the bulk of cash could have also been paid out.

Sometimes the obvious course of action is not the best.

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