Now apply the general rule to the situation of Bill and Jane, his spouse. Bill is a member of a superannuation fund and the terms of his Will is that if Jane survives him by 30 days, the entire estate is paid to Jane and if not, the entire estate is paid to Bill’s parents.

Bill has died and Jane survives him by 30 days. Unfortunately, before the death benefit is paid to Bill’s estate, Jane dies. Under succession law, there is no doubt that the death benefit once received by Bill’s estate must be paid to Jane’s estate.

However, how is the death benefit treated for tax purposes in Bill’s estate?

Ruling 1 held that the death benefit was tax free in Bills’ Estate. Ruling 2 held that the death benefit was taxable. Hence the tale of two conflicting Private Binding Rulings.

While Ruling 1 had the favourable result for the taxpayer, the ruling did not explicitly address this issue. Unfortunately, Ruling 2, which had an unfavourable result, did explicitly address this issue and, again, but very unfortunately, had the much better reasoning to reach this conclusion. Additionally, Ruling 2 is consistent with another recently released Ruling – Ruling 3.

Ruling 1 seems to have reached its conclusion on the basis that Jane (despite being deceased) may be expected to receive the death benefit and so, the death benefit is treated as if Bill’s estate was a death benefits dependant. Possibly, this conclusion is reached by treating a benefit to Jane’s estate as being a benefit to Jane. Again, possibly “benefit” is treated as a present legal entitlement to be paid the death benefit.

Ruling 2 reaches its conclusion by treating “benefit” as being the present personal enjoyment of the value constituting the death benefit. As Jane has died before the death benefit was paid to Bill’s estate, she cannot personally enjoy the value of the death benefit. Similarly, as Jane has died before the death benefit was paid to Bill’s estate, the executor of Bill’s estate has no basis to conclude that Jane may be expected to personally enjoy the value of the death benefit. Hence, the death benefit is taxed in Bills’ estate at 15% (zero tax on the tax-free component of the death benefit).

Is there a moral of the conflicting tale? There are a couple. First, section 302-10 of the Income Tax Assessment Act 1997 (which sets out have death benefits paid to the estate of the deceased member taxed) is more complicated than it first appears. Second, timely payment of death benefits is of the essence. Third, even if the death benefit was paid directly to Jane (for example as a result of a binding death benefit nomination) and Jane died before the payment was made, the application of s302-10 would not be avoided as that section would apply to Jane’s deceased estate. Finally, timely payment of death benefits is of the very essence.

For ease of discussion, fictitious names have been used for the parties. Prior to publication, PBRs are redacted of information which may identify the individuals to which the ruling applies. Ruling 1 is BPR 1051838730781. Ruling 2 is PBR 1052273158502. Ruling 3 is 1052255851137.