SMSFs: pre-1 July 2017 commutation of death benefit income streams – Practical Compliance Guideline PCG 2017/6
This ATO Guideline, issued on 22 May 2017, sets out a practical administrative approach to help SMSFs comply with the SIS Regs if they have received a superannuation lump sum resulting from the pre-1 July 2017 commutation and roll-over of a death benefit income stream.
The Commissioner is aware that industry participants have inferred (from TD 2013/13) that s 307-5(3) of the ITAA 1997 provides a mechanism for a deceased member’s spouse to roll over a death benefit income stream and retain the amounts as her or his own superannuation interest, without needing to immediately cash-out that benefit. This has resulted in a number of death benefit income streams being commuted, rolled over and treated as the spouse’s own superannuation interest, with the amounts becoming mixed with the spouse’s other superannuation interests and/or remaining in the accumulation phase. However, the ATO view is that rolling over a death benefit income stream does not change a superannuation provider’s obligation to cash the deceased member’s interest as soon as practicable (as a superannuation lump sum and/or a death benefit income stream).
The Guideline acknowledges that funds would face significant practical difficulties (in tracing, valuing and then cashing death benefits) if they were required to apply the Commissioner’s position. Accordingly, the Guideline advises that the ATO will not apply compliance resources to review whether a SMSF has complied with the compulsory cashing requirements relating to a death benefit (as set out in reg 6.21 of the SIS Regs) if all of the following requirements are satisfied:
- the SMSF member was the deceased’s spouse at the date of death;
- the commutation and roll-over of the death benefit income stream occurred before 1 July 2017; and
- the superannuation lump sum paid from the commutation is a member benefit for income tax purposes because it satisfies s 307-5(3) of the ITAA 1997.
The Guideline notes that the requirement that the commutation take place before 1 July 2017 is based on the current application of the repeal of s 307-5(3). However, the exposure draft of the Treasury Laws Amendment (2017 Measures No 2) Bill 2017 (see 2017 WTB 17 [519]) proposes that s 307-5(3) be repealed from the day after the Bill’s introduction into Parliament.
Date of effect
The Guideline applies both before and after its date of issue. It was not previously released in draft form.