Once again it has been necessary for the ATO to clarify an important issue regarding the payment of a member’s benefits after death. In 2011, in a draft ruling, the ATO took the position that a super income stream (e.g. pension payment) must cease as soon as the recipient has died unless a dependent beneficiary of the deceased member is “automatically entitled to receive that income stream”. Carrying on from this, the ATO took the view that tax would generally be payable on the fund member’s investment earnings, including realised capital gains, after death.
This ATO view has been subjected to so much criticism that late last year the Government was obliged to release draft regulations to give certainty to this issue. The Government’s position (once the draft regulations are gazetted) will allow the tax exemption for earnings (e.g. pension payments) on assets supporting superannuation income streams to continue following a fund members death where the member was in a “pension phase” until his/her benefits have been paid out of the fund.
It is intended that these changes will be made retrospective from the 1st July 2012.
For further queries or concerns about any superannuation, please contact Chris McClure or a member of our Estate Planning team.