In its updated guidance, the ATO stated that where a member has requested an amount to be paid to their fund before they died but died before they received it, it may be a member benefit in some limited cases.

“This is determined by the facts and circumstances surrounding the payment,” the ATO noted.

“A trustee of a regulated super fund can only pay super benefits according to the governing rules of the fund, including the fund’s trust deed and the relevant legislation.”

The ATO explained that the governing rules set out when benefits can be paid and who they can be paid to, including after a member’s death.

“The governing rules of the fund must be read carefully to determine a member’s benefit entitlements in the event of death,” it cautioned.

“At the time of payment, the trustee must assess whether it is a member or death benefit based on the facts known at the time, including:

• Terms of the request from the member
• Terms of the trust deed and any other governing rules
• Knowledge at the time the payment is made (including whether they are aware that the member has died)
• The entity that the payment is being paid to
• Circumstances and timing of the payment
• Whether the payment is made because of and in line with the request made by the member.

SMSF paying a death benefit

The ATO gave an example of Jack and Jill, who are spouses and member and trustees of the Hill SMSF.The ATO explained that Jack has a terminal medical condition and makes a request to his SMSF for release of his super.

“Before the benefit payment is made, Jack passes away. It is then paid to an account belonging to his legal personal representative, forming part of Jack’s deceased estate,” it said.

At the time of payment Jill, as the surviving trustee, considered the above factors and determined that the payment is a death benefit.

The ATO noted that in this scenario, the terms of the trust deed of the Hill SMSF allow for release where a member meets a condition of release, including both the terminal medical and death conditions.

It also noted that the trustee of the SMSF knew Jack has passed away before authorising the payment and that Jack’s super benefits were paid to his legal personal representative’s account.

“The payment is being made as soon as reasonably practicable to satisfy the compulsory cashing requirement that applies when a member dies, rather than in accordance with Jack’s prior request,” it said.

APRA-regulated fund paying a member benefit

The ATO provided another example involving Satine, a member of an APRA-regulated super fund.

In this scenario, Satine has a terminal medical condition and makes a request to her fund for release of her super benefits.

“The trustee does not become aware of this until after the benefit is paid to the account in Satine’s request,” the ATO explained.

The terms of the trust deed allow for release where a member meets a condition of release under Schedule 1 of the SISR) with a nil cashing restriction, the ATO noted.

“At the time of payment, the trustee considers the above factors and determines that the payment is a member benefit.”

The ATO stated that the trustee was not aware that Satine had passed away and that it made the payment to Satine’s personal bank account expecting that she would be alive to personally receive it.

“It also made the payment in line with Satine’s request to release money and not any other requirement,” it said.

Commenting on the recent updates to QC 45254, View Legal director Matthew Burgess said the examples provided by the Tax office highlight some of the key factors that should be used when determining whether a payment after death is a member benefit or death benefit.

One of these factors is whether the trustee was aware that the member was deceased at the time of payment, he explained.

Where the trustee was unaware that the member had died, this supports a conclusion that the payment is a member benefit, he said.

Another key factor is whether the payment was made to an account in the name of the member, or in the name of the member's legal personal representative, said Mr Burgess.

“Payment to the member's account [supports the] conclusion that the payment is a member benefit,” he said.

“As flagged in the examples, this seems to indicate that the Tax Office believes SMSFs will be unlikely to substantiate payment of a member (as opposed to death) benefit post death (given the trustee is almost certain to be aware that the member has died) as compared to an APRA fund where the trustee may be unaware of the member's death at the date of payment,” said Mr Burgess.

“Furthermore, unless the purported member benefit payment is supported by the trust deed and implementation documentation and made to the bank account of a member, any payment following a member's death is likely to be treated by the Tax Office as a death benefit.”