Super funds will be exempt from tax on pension stream assets for deceased estates under draft regulations released by the Federal Government to amend income tax assessments.
The amendments expand the definition of ‘superannuation income stream benefit' to give super funds the right to tax exemption on investment earnings from assets that support a pension stream following a pension member's death, until the pension benefit is paid.
The regulations are backdated to 1 July 2012 and apply to the 2012-13 and later income years.
The Minister for Financial Services and Superannuation, Bill Shorten, said the regulations implement the commitment Government made in the 2012-13 mid-year economic and fiscal outlook (MYEFO) to provide tax certainty to the beneficiaries of deceased estates.
In 2011, the Australian Taxation Office (ATO) released a draft ruling that led to confusion around the eligibility for tax exemptions for pension members who had died.
Last October the Government announced it would amend the measures to allow the pension earnings' tax exemption to continue beyond the death of the pension recipient, until the benefits were paid out in full as soon as practicable.
"There has been some uncertainty for family members about the taxation of their loved one's super," Shorten said.
"This uncertainty has also posed practical difficulties for superannuation funds.
"These regulations will ensure that investment earnings on superannuation benefits that were supporting a pension will continue to be tax exempt following the death of the pension recipient until the benefits are paid out of the fund," Shorten said.
Treasury is accepting comment on the draft until 14 February.
