CGT on Death
Topic: CGT on Death
Posted: 25/August/2006 at 10:50
Where you have a single member fund in pension phase or a 2 member fund with one member in pension mode , the other in accumulation mode and the pension member dies, what are the CGT consequences.?
Assume both funds have assets that have CGT that would need to be realised to pay out beneficiaries.
In case 2 assume there is not a Reversionary Nomination
|Quote Reply Posted: 29/August/2006 at 10:07|
This is always an interesting issue, The ATO issued an ID 2004/688 which is detailed below.
The basic analysis the ATO has given is that at the time the member dies, the member ceases to be a pensioner and reverts to a member receiving a death benefit, hence their benefits are no longer entitled to a tax free status.
This would be inrespective of the fund being segregated or apportioned, or having other members, as this is a member related issue.
Exempt income - segregated current pension assets
Does the exemption provided by section 282B of the Income Tax Assessment Act 1936 (ITAA 1936) for exempt pension income continue to apply after the death of a sole member of a superannuation fund who was in receipt of a pension prior to his death?
No, the exemption provided by section 282B of the ITAA 1936 for exempt pension income does not continue to apply after the death of the sole pension recipient of a superannuation fund.
The fund is a complying superannuation fund.
The fund has a single member.
The fund was paying a pension to the member.
The member of the fund died.
The trust deed of the fund does not provide for reversionary pensions or annuities to be paid. On the death of the member, any remaining monies are payable as a lump sum to the member's 'Nominated Dependant.'
Reasons for Decision
Section 282B of the ITAA 1936 allows an exemption from tax for the amount of normal assessable income of a complying superannuation fund that is derived from segregated current pension assets.
Section 273A of the ITAA 1936 provides that assets are 'segregated current pension assets' if:
This means that assets are current segregated pension assets only when they are held or invested for the purpose of paying current pension liabilities. A 'current pension liability' is defined in subsection 267(1) of the ITAA 1936 as a liability, including a contingent liability, of the fund to make a payment in respect of a pension payable by the fund at the particular time. In other words, once a fund no longer has any current pensions in payment and there is no provision for a contingent pension to commence, the fund no longer requires current pension assets.
Where a fund ceases to have a current pension liability due to the death of a sole member with no contingent pension payable, the assets cease to be 'current pension assets' and the income is no longer exempt pension income. As a result the exemption provided for by section 282B of the ITAA 1936 ceases to apply.
Date of decision: 1 July 2004
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