Just Can't Get Enough tax wins **

Last week's post explored the more concessional than previously expected approach to superannuation proceeds trusts (SPT) by the Tax Office (see - Don't Stop Believin' - Tax Office & superannuation proceeds trusts **).

In another, possibly related, Private Binding Ruling (see Authorisation Number 1051187537572) the Tax Office provides further clarity about how an SPT can ensure infant beneficiaries access excepted trust income. As usual if you would like a copy of the Private Ruling please contact me.

As mentioned last week, the Tax Office accepts that an SPT can still access excepted trust income where the relevant superannuation death benefit is not paid directly to the deceased member's estate, but instead to their surviving spouse.

Importantly however, as is the case with estate proceeds trusts (to learn more about this structure see our previous post here - Testamentary trusts - is it ever too late?), the amount of income that is excepted trust income is limited to the amount of income that would have flowed to the child from property that would have devolved on the child from the estate of the deceased person under the laws of intestacy (see section 102AG(7) of the Tax Act).

In other words, the Tax Office essentially treats the superannuation death benefit as if it formed part of the estate of the deceased person. This means that in states such as NSW and Victoria the strategy is likely to be unavailable for tax planning purposes given that in those states infant children are not entitled to anything on intestacy if there is a surviving spouse.  

In the Private Ruling the Tax Office also confirms that -

1. in order to access the excepted trust income regime, the infant beneficiary of the SPT must (pursuant to the terms of the trust deed) acquire the trust property (other than as a trustee) when the trust ends (as mandated by section 102AG(2A) of the Tax Act). 
2. excepted trust income is only available for the SPT to the level that would have been derived had the parties been dealing on an arm's length basis (see section 102AG(3) of the Tax Act). Importantly, this requirement is not that the parties themselves have to be arm's length; rather they must act on an arm's length basis. 
3. the income of an SPT will not be excepted income if it is derived, directly or indirectly, under or as a result of an agreement that was entered into or carried out for the purpose, or for purposes that included the purpose, of securing that the assessable income would be excepted trust income. However, if the purpose of deriving excepted trust income is no more than merely incidental, then the purpose is disregarded and the income may still be excepted (see sections 102AG(4) and (5) of the Tax Act). 

** For trainspotters, in 1981, when much of the original thinking around these rules was developed, the Depeche Mode song 'Just Can't Get Enough' was one of the hits of the year. Given the likelihood many readers of today's post were not born in 1981, further learning is available here - https://www.youtube.com/watch?v=_6FBfAQ-NDE

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Don't Stop Believin' - Tax Office & superannuation proceeds trusts **

Previous posts have explored various aspects of superannuation proceeds trusts (SPT).

View the earlier posts at the following links -

http://blog.viewlegal.com.au/2015/06/view-legal-and-superannuation-proceeds.html

http://blog.viewlegal.com.au/2014/09/what-are-superannuation-proceeds-trusts.html

As explained in these posts, historically there was a concern that the Tax Office may adopt a narrow interpretation of the tax legislation and mandate that the superannuation death benefits pass directly from a super fund to an SPT in order to access the excepted trust income concessions.

This was because, section 102AG(2)(c)(v) of the Tax Act allows infants to access excepted trust income where the transfer of funds to the SPT is 'directly as the result of the death of a person and out of a provident, benefit, superannuation or retirement fund'.

In Private Ruling Authorisation Number 1012994963374, the Tax Office confirms it will accept that property transferred to the benefit of a minor by the widow or widower sourced from superannuation moneys originally paid to the widow or widower (ie not to the SPT), will still fall within the requirements of the Tax Act (and in particular section 102AE(2)(c)(ii)). As usual if you would like a copy of the Private Ruling please contact me.

In support of this interpretation the Tax Office references comments in the Canberra Income Tax Circular Memorandum (CITCM) 884 published in 1981 to confirm its view that superannuation monies are to be treated as if they formed part of the estate of the deceased person, even if there is an ‘interposed step’ where the funds pass through the hands of a surviving spouse.

This means that the requirement set out in section 102AG(2)(d)(ii) of the Tax Act will be met and in turn the assessable income of the SPT will be excepted trust income. Section 102AG(2)(d)(ii) ensures access to excepted trust income where funds are transferred to the trustee for the benefit of the beneficiary by another person out of property that devolved upon that other person from the estate of a deceased person and was transferred within 3 years after the date of the death of the deceased person.

** For trainspotters, in 1981, when the CITCM referenced here was released, Journey's song Don't Stop Believin' was one of the hits of the year. Given the likelihood many readers of today's post were not born in 1981, further learning is available here - https://www.youtube.com/watch?v=2NQIPVqLMUg

Image courtesy of Shutterstock

Estate planning and the 2017 super reforms – the six post death strategies you must be aware of

Last week’s post considered 11 of the key strategies that need to be taken into account from an estate planning perspective in light of the 2017 superannuation changes (see - Estate planning and the 2017 super reforms – the 11 things you must be aware of).

Each of the issues flagged were primarily focused on pre-death estate planning strategies.

There are however a number of post-death issues in light of the 2017 superannuation changes that should be considered from an estate planning perspective, namely:

1. Death benefit pensions can now be rolled over to a new fund (under the previous rules, this was very difficult). 
2. Reversionary beneficiaries will now have up to 12 months from the death of the member to determine whether or not they wish to cash a benefit before it is credited to their entitlements and if the amount will result in the beneficiary exceeding their $1.6 million transfer balance cap, the excess amount must be paid as a lump sum benefit. 
3. Where there is no reversionary pension, the pre-existing requirement that benefits be paid ‘as soon as practicable’ remains in place. Whether this phrase can be read in the context of the new amendments to mean (say) within 12 months remains open to debate. Next week’s post will consider in more detail the appropriate interpretation of this phrase. 
4. Where no specific strategies have been implemented and a member passes away, it may be possible to establish a post-death superannuation proceeds trust. Generally, a post-death superannuation proceeds trust can allow infant beneficiaries to gain access to adult tax rates on income received. 
5. This said, there are a number of technical requirements that must be met and the range of circumstances where the structure is available and appropriate is relatively narrow and should generally be seen as an alternative of last resort (previous posts have explained the various issues in this regard further, see - Why superannuation proceeds trusts should only be an avenue of last resort and Superannuation proceeds trusts: Tricks and traps). 
6. When dealing with an SMSF, control of the fund continues to be critical and prior to implementing any of the approaches above, steps should be taken to ensure the SMSF is compliant with the SIS Act and trust deed (in particular, by ensuring any required changes to the trustees or directors of the corporate trustee are processed within the required timeframes). 

The above post is based on the article we recently had published in the Weekly Tax Bulletin.

Finally, many of the themes in this post were featured in our recent Estate Planning Roadshow.

Download the brochure to purchase a full recording of the event here - https://viewlegal.com.au/product/recorded-webinar-package/

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Post death testamentary trusts

Previous posts have touched on various forms of testamentary discretionary trusts, including 'post death' testamentary discretionary trusts http://blog.viewlegal.com.au/2010/05/testamentary-trusts-is-it-ever-too-late.html.

In very broad terms, these trusts are created so as to provide a pathway to access the excepted trust income rules under the Tax Act. In particular, they allow income to be distributed at adult rates to children under the age of 18.

While there are a number of rules that need to be complied with before setting up a post death testamentary trust, it is worth remembering that the structure is in fact available in a variety of circumstances, including:

1. Where the deceased dies with assets in their own name and a basic will (i.e. not incorporating a testamentary trust);
2. Where the deceased dies with assets in their name and has no will (i.e. they are intestate);
3. Where the deceased dies with superannuation entitlements (including insurance); or
4. Where the deceased dies with insurance entitlements.

Importantly, this type of trust is also available where the parties to a marriage separate and there are child support obligations that need to be satisfied.

View’s 90 minute webinar exploring the key issues in relation to post death trusts is available here - https://viewlegal.com.au/product/recorded-webinar-package/

Extracts of the webinar are also available via our podcast channel, see - https://viewlegal.com.au/view-podcasts/

Image credit: Markus Spiske cc