Death Benefit Tax Announcement

14 Feb 2023

Written by

David Busoli, Principal

There are times when the regulator’s interpretation of the law enhances certainty and provides the basis for practical, uncontentious outcomes. The recently released (QC 45254), dealing with the treatment of lump sum super benefits, where the lump sum is requested by a member who passes away before the payment is made by the trustee, does neither.

Essentially the release indicates that the benefit will be paid as a member benefit if the trustee does not know the member has died, and a death benefit if they do. The tax differences can be considerable.

A number of private binding rulings on the matter over the last few years have determined that the benefit is a member withdrawal, not a death benefit payment, irrespective of the trustee’s knowledge of the member’s death. The trustee’s knowledge of the death did not even rate a mention.

What we were expecting was a simple determination one way or the other. What we got was a determination based on subjective and arguable facts. Even the example raises doubt as it states that “the trustee of the SMSF knew Jack had passed away before authorising the payment”. Does this mean that, if the payment had been authorised before the member had passed, it would have been a member withdrawal?

This determination is not fit for purpose and needs replacing.

Keeping you up-to-date with what you need to know about SMSFs. Subscribe to get our updates delivered straight to your inbox.

More SMSF News