Death benefit pensions above transfer balance cap
Information released in the ATO’s Practical Compliance Guideline 2017/6 has clarified much confusion surrounding superannuation reforms and the commutation of a death benefit income stream made before 1 July 2017.
When an individual dies, their superannuation and remaining superannuation interests are to be cashed to their beneficiaries or legal representative by their superannuation provider. This payment is called a superannuation death benefit.
Superannuation death benefits can be cashed as:
- A lump sum paid by the superannuation system;
- A death benefit income stream retained in the superannuation system; or
- A combination of both.
With the introduction of the transfer balance cap, much confusion has arisen over the correct course of action.
The ATO has stated that the Commissioner will not apply compliance resources to review whether an SMSF has complied with compulsory cashing requirements relating to a death benefit, provided that:
- the SMSF member was the spouse of the deceased on the date they deceased;
- the commutation and roll-over of the death benefit income stream is made prior to 1 July 2017; and
- the superannuation lump sum paid from the commutation is a member benefit for income tax purposes because it meets the appropriate requirements (as defined in subsection 307-5(3)).