The member unfortunately passed away soon after and on the day they died, the fund sent a member statement indicating which portions within the fund would be included in the taxable component and which would be included in the tax-free component. The member had nominated a number of beneficiaries to receive the funds following their death.

As one of the first steps of paying the withdrawal, the fund rang the member's mobile number to verify the withdrawal request but received no answer. A message was left asking for a call back to discuss the withdrawal request. The fund also sent an email to the member's email address advising that they attempted to call to discuss the recent withdrawal application and requested a call back to discuss outstanding requirements.

Shortly after, the fund again attempted to contact the member's mobile number to verify the withdrawal request. One of the beneficiaries answered the call and advised the fund that the member had passed away. The fund then informed the beneficiary that the withdrawal must be treated as a death benefit rather than a member withdrawal.

The beneficiary was dissatisfied with this decision, noting that the fund did not complete the payment in the required number of business days. They were also dissatisfied that the fund did not disclose the process of having to contact the member before making the payment.

The beneficiary made a complaint to the fund about the time frame regarding the payment and notification.

The fund provided the beneficiary with a response stating there was adequate disclosure that the fund may contact members to verify instructions or request additional information. It also noted that while the fund aims to meet the specified time frame, it is not guaranteed.

The fund indicated that under relevant legislation and guidance, it was of the view that the benefit should be paid as a death benefit and subsequently had not paid any amounts from the member's account to the member or the beneficiaries due to the disagreement relating to the classification of the payment.

The member was over 65 at the date of death and had already satisfied a condition of release. Additionally, the member's death also resulted in them meeting another condition of release which has “nil” cashing restrictions.

The ruling said the benefit, as requested shortly before the member's death but paid from the member's account after their death as a lump sum payment, is a superannuation lump sum.

“The distinction between a superannuation member benefit and a superannuation death benefit is important because the tax treatment of the superannuation benefit varies according to its classification as well as the age of the recipient and the components of the benefit,” the ruling said.

“An amount that a member requested to be paid from their superannuation fund before their death, but was paid after their death, may be classified as a member benefit instead of a death benefit depending on the facts and circumstances of the payment.”

The commissioner considered that as part of the governing rules of the fund, it was reasonable for the fund to follow their rules to contact the member to verify the withdrawal instruction or request additional information. In this case, following such a rule was likely a factor that contributed to the longer time frame of payment processing.

The fund became aware that the member had passed away before it could actually make the payment and is of the belief that the “entity” the payment is being made to will not be the member.

“In other words, the payment will not be made directly to the member's personal bank account, but will most likely be made to the trustee of the late member's deceased estate or to the beneficiaries,” it added.

“The fund is still of the view that the benefit should be paid as a death benefit, and the timing of the payment has been significantly delayed due to the disagreement relating to the classification of the payment. Accordingly, it is reasonable to treat the total superannuation lump sum benefit as a superannuation death benefit.”