.png)
I’m auditing a fund with one member who died part way through 2021 FY. He had drawn the minimum pension by the time he died. So, I was happy that the fund was both in pension phase and compliant for that part of the year. up to date of death.
QUESTION ONE
On the day the member dies does he pension account cease and that member balance revert back to an Accumulation Account or when does it revert back to an Accumulation account?
If so in the financial year we will have part year free of tax and the other part subject to tax.
As there were no binding death benefit nominees and no reversionary pension, the trustee is in the process of selling all assets of the fund and distributing them to the executor of the decease’s estate. Our understanding is that the member had no dependents.
QUESTION 2
On the basis that the fund will paying out the cash to Non Dependents ( Executor for Estate ). Is it correct that tax must be withheld from the payment and the tax money paid by the smsf to the ATO? That the fund was prepare a Lump Sum Payment advice and provide to the Payee. That the Payee only receives the Net amount.
QUESTION 3
What other compliance issues should we be looking at?
Hi Campbell
Yes if a member dies and there is no reversionary pension to be paid the pension ceases at the date of their death.
The SMSF can continue to claim exempt current pension income until a new income stream is paid or until a lump sum death benefit is paid.
This view is supported by the ATO that states at:
"When a pensioner dies
Upon the death of a member, a non-reversionary pension ceases.
From 1 July 2012, Income Tax Assessment Amendment (Superannuation Measures No. 1) Regulation 2013 ensures that, where a member who was receiving a non-reversionary super income stream that was in the retirement phase dies, the fund will continue to be entitled to claim ECPI in the period from the member’s death. This is until their benefits are applied to commence a new super income stream or paid as a lump sum (subject to the benefits being cashed as soon as practicable)."
If the benefits are paid to the member's estate then it is up to the estate to pay any tax payable on the death benefit. The PAYG Payment Summary needs to be completed by the Fund and given to the estate with the payment.
If the benefits are paid direct to a non-dependant and not via the estate then it is up to the Fund to remit any tax payable (and prepare a PAYG Payment Summary).
From a compliance perspective I would also review:
1) What does the trust deed say in relation to payment of a death benefit.
2) What will happen to the trustees or trustee of the Fund (SIS sec 17A).
3) The benefits must be paid as soon as practicable (SIS reg 6.21).
4) Benefits (if not paid as a pension) may be cashed by single lump sump or interim lump sum & final lump sum (SIS Reg 6.21).
Thanks
SMSF AAA