Private Clients

Delay in the payment of a member’s superannuation withdrawal request could have serious tax consequences

11 September, 2023

Tax Ruling:

This is a Private Tax Ruling dated 9 June 2023.


The issue

The member of a SMSF made a withdrawal request before his death but the benefit was not paid until 28 weeks after his death.

The question was whether the ATO would treat this payment as a member withdrawal (no tax) or a death benefits payment (and subject to death benefits tax).


The facts

the member:

  • was over 65 years old at the date of his death.
  • held one superannuation account in the SMSF (an account based pension).
  • had no death benefit dependants.
  • lacked legal capacity (the member’s brother had been appointed as Administrator and able to make financial decisions for the member).


  • before the member’s death, the Administrator decided to fully commute the member’s account-based pension. The Administrator completed a withdrawal and account closure form and requested the benefits be paid to the member’s bank account.
  • all forms were submitted by the Administrator to the SMSF before the member’s death.
  • the member died unexpectedly.
  • the trustee of the SMSF paid the final withdrawal benefit into the member’s personal bank account about 28 weeks after the member’s death.


The Ruling

The ATO ruled that the full commutation of the member’s pension account was a superannuation death benefit (not a member’s withdrawal).

The ATO noted the importance of classifying the payment because:

  • for a member 60 years or over – when withdrawing the (taxed) taxable superannuation benefit (whether a lump sum or income stream) – it is tax free, and
  • for a death benefit and where the recipient is not a death benefits dependent, death benefits tax is payable on the taxable component.


The ATO stated that:

In some circumstances, a superannuation member benefit payment requested by the member before their death but paid after their death may be classified as a member benefit rather than a death benefit, and

when the trustee of a fund is assessing whether the payment is a member benefit or a death benefit, the trustee must take into account the facts known at the time, including:

  • the terms of the request,
  • the terms of the trust deed and other governing rules,
  • the trustee’s knowledge at the time the payment is made (including whether the trustee is aware that the member has died),
  • the entity the payment is being made to,
  • the circumstances and timing of the payment, and
  • whether the payment being made is consistent with the member’s request.


The ATO concluded that:

  • the trustee was aware of the member’s death before it paid the lump sum benefit.
  • even though the payment was to the member’s bank account, the trustee could not have had the expectation that the member would be alive to receive the payment.
  • the extended delay between the member’s death and the payment of the lump sum indicated that it was not a payment made because of and consistent with the member’s request, but rather a payment made as part of the winding up of the member’s deceased Estate.


Key takeaways

The trustees of superannuation funds must not delay in the payment of a member’s withdrawal request, as any extended delay could have serious tax consequences.

The information contained in this article is for general information only and is not a substitute for specific advice. You should obtain specific and appropriate legal advice before any action or decision is taken on the basis of any of the information contained in this article.


Please contact us if you or your clients require any advice on the complexities involved in superannuation death benefit planning.

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After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed.   Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. 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