Reasonable benefit limits—death benefits
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A pension or annuity that continues to be paid to a beneficiary after the death of the original recipient, is called a 'reversionary' pension or annuity.
The same RBL treatment applies whether the pension or annuity:
- is paid to a nominated reversionary beneficiary, or
- the payer exercises a discretion to continue to pay a pension or annuity after the death of the original pensioner or annuitant.
A reversionary pension or annuity that is received after the death of the original pensioner or annuitant does not count towards RBLs. If the pension or annuity is rebatable (that is, it is eligible for the 15% superannuation pension or annuity tax rebate) then a rebatable proportion of 1 applies. Note that a rebatable proportion of 1 applies even if the rebatable proportion was less than 1 while the pension or annuity was being received by the original recipient.
A legislative amendment has been foreshadowed by the Government that will ensure that the original rebatable proportion will continue to apply when a pension or annuity reverts to a beneficiary.
If the beneficiary fully or partially commutes the reversionary pension or annuity, then the eligible termination payment (ETP) does not count towards RBLs. The ETP and any residual pension or annuity is treated as within the RBLs. The legislative amendment mentioned above will ensure that these benefits are excessive to the same extent as the original pension or annuity.
If the beneficiary receives a residual capital value ETP, then the ETP does not count towards RBLs. The ETP is treated as within the RBLs. The legislative amendment mentioned above will also ensure that these benefits are excessive to the same extent as the original pension or annuity.
If a pension or annuity is paid because of the death of another person, and the pension or annuity had not commenced to be paid to the deceased (for example, because the deceased died before retirement), then the pension or annuity is determined in the normal way against the recipient's RBL.
If the pension or annuity is fully or partially commuted within 6 months of commencement then the amount counted from the original pension or annuity is reduced to nil. The ETP is a 'death benefit ETP' if it is received within :
- 6 months of the death of the deceased, or
- 3 months of the granting of probate or letters of administration in relation to the estate of the deceased.
If the ETP is a death benefit ETP, it is determined against the pension RBL (or any higher transitional RBL) of the deceased. Otherwise the ETP is measured against the beneficiary's RBLs in the normal way. Any residual pension or annuity is then measured against the beneficiary's RBLs in the normal way.
If the pension or annuity is fully or partially commuted 6 months or more after it commenced, the ETP and any residual pension or annuity will be determined to be in excess of the RBL to the same extent as the original pension or annuity.
If a residual capital value ETP is paid, then the ETP will be determined to be in excess of the RBL to the same extent as the original pension or annuity.
If an ETP is paid because of the death of another person, and the deceased had not been receiving any related pension or annuity, then the death benefit ETP is determined against the pension RBL (or any higher transitional RBL) of the deceased.
If the deceased had been receiving a pension or annuity, and on his or her death an ETP is paid, then for RBL purposes that ETP is treated as a commutation or residual capital value of the pension or annuity that was payable to the deceased.
Further information on this topic can be obtained by:
- visiting the ATO superannuation website at www.ato.gov.au/super
- phoning the Superannuation Infoline on 13 10 20 for the cost of a local call
- writing to us at:
Superannuation Business Line
Australian Taxation Office
PO Box 2000
Moonee Ponds VIC 3039
- obtaining A Fax From Tax 13 28 60
- if you do not speak English and need help from the ATO, phoning the Translating and Interpreter Service on 13 14 50
- people with a hearing or speech impairment with access to appropriate TTY or modem equipment can communicate with the ATO by first contacting the Australian Communication Exchange Relay Service on 13 25 44.
Note: This publication is available free from the Australian Taxation Office (ATO), which prohibits any party from selling it. Please get help from the ATO or a professional tax adviser if you feel this publication does not fully cover your circumstances. We regularly revise our publications to take account of changes to the law and you should make sure that this edition is the latest.
As part of our commitment to produce accurate publications, taxpayers will not be subject to penalties if they can demonstrate that they based a tax claim on wrong information supplied by the ATO. However, interest could be payable depending on the circumstances of each case.
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NAT 5263
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