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| Death Taxes & Pensions |
The Australian Taxation Office has issued a draft ruling in July (TR/2011 D3) which provides that assets in the pension accounts of deceased fund members are not exempt from capital gains tax when they are sold to pay death benefits - this has relevance to all superannuation funds. This ruling is a clarification of the ATO's established position
The main points to note for SMSF trustees are:
- Income and capital gains in pension accounts are tax exempt.
- The disposal of assets from a pension account does not attract CGT.
- When the pension account holder dies, the law treats the pension as having ceased. From that point the tax exemption is lost.
- When pension assets are sold or realised to pay a death benefit then CGT may be payable.
One way to deal with this situation is to actively manage the fund's assets such that the cost base of the assets in the fund is updated. Consider selling assets which have built up large unrealised capital gains during the life of the pension account holder.
There is also the possibility of dealing with valuable assets by having unsegregated pension accounts.
Specific structuring advice should be sought with regard to this point.
