The spouse passed away seven months later and the deceased's superannuation policy had at the time not been paid to the spouse before they passed away.

The fund required the executor of the spouse's estate to apply for a grant of probate for the deceased's estate before they would release the funds.

The executor of the spouse's estate applied for the grant of probate, and the balance of the deceased’s superannuation fund policy was paid to the spouse's estate. The spouse's final beneficiaries were not death benefit dependants.

In its ruling, the ATO stated that division 302 of the Income Tax Assessment Act 1997 sets out the taxation arrangements that apply to the payment of superannuation death benefits. These arrangements depend on whether the person who receives the superannuation death benefit is a dependant of the deceased and whether the amount is paid as a lump sum superannuation death benefit or a superannuation income stream death benefit.

A superannuation death benefit is defined in section 307-5(1) of the ITAA 1997 as a payment from a superannuation fund after another person's death because the other person was a fund member.

The deceased's spouse was a death benefits dependant under paragraph 302-195(1)(a) of the ITAA 1997 at the time of the deceased's death.

“Although the deceased's spouse was a death benefits dependant, the concessional tax treatment afforded by subsection 302-10(2) of the ITAA 1997 is reliant upon the superannuation death benefit being received or expected to be received by a death benefit dependant,” the ruling stated.

“Ordinarily, the requirement to ascertain whether a death benefit dependant may be expected to benefit from a superannuation death benefit arises when the trustee of the estate is required to lodge an income tax return for the estate after the superannuation benefit has been received by the estate but before the assets can be distributed to the beneficiaries.”

Furthermore, it stated the provision allows the trustee to make a determination that the death benefit will be tax-free to the extent that a death benefit beneficiary will receive it once the estate assets can be distributed.

“Subsection 302-10(2) of the ITAA 1997 refers to death benefit dependants who 'have benefited, or may be expected to benefit, from the superannuation death benefit'. The use of the phrase 'may be expected to benefit' connotes something that is less than absolute certainty,” it continued.

“The death benefit dependant in question does not have to have already benefited from the death benefit, it is enough that they can reasonably be expected to benefit. However, for subsection 302-10(2) of the ITAA 1997 to apply, there needs to be a reasonable expectation that the superannuation death benefit will be received by a death benefits dependant.”

The ruling continued that although death benefit dependency is assessed at the time of the deceased's death, this is not necessarily applicable to the determination of who has benefited, or is expected to benefit, from a superannuation death benefit.

“In this case, it would be reasonable to conclude that the deceased's spouse has not benefited, nor can they be expected to benefit, from the superannuation death benefit of the deceased, as the spouse passed away before it was paid.”