The government has made amendments to “provide tax certainty for deceased estates in situations where a person has died while in receipt of a superannuation income stream”.

Broadly, a superannuation fund is entitled to a tax exemption for income that supports the payment of superannuation income stream benefits (i.e., superannuation pensions).

The term ‘superannuation income stream benefit’ is defined in the Income Tax Assessment Regulations 1997 (ITAR), and this meaning has been expanded for the purposes of the earnings tax exemption.

The expanded meaning of this term ensures that, where a complying superannuation fund member was receiving a superannuation income stream immediately before their death, the superannuation fund will continue to be entitled to the earnings tax exemption in the period from the member/s death until their benefits are cashed:

• by paying them out as a lump sum; and/ or
• by commencing a new superannuation income stream;

subject to the benefits being cashed as soon as practicable.

The level of the exemption would be no greater than it was before the member’s death (allowing for investment earnings after the member’s death).

Also, the tax-free and taxable components of that superannuation income stream are to be used in calculating the tax components of the superannuation benefits paid after the death of a person who was receiving a superannuating income stream immediately before their death.

The amendments apply to the 2012/13 and future income years.