Recent ATO ID 2015/17 - future service portion of death benefits

The ATO has recently issued an Interpretative Decision which sets out its view as to when a superannuation fund trustee can claim a deduction for the "future service portion" of a death benefit rather than claiming a deduction for the insurance premium.  The Interpretative Decision was released on 5 June 2015.

The “future service portion” of a death benefit is that portion of the death benefit which relates to the period from the date of death to the “retirement date” of the member: it is a simple time appointment of the death benefit between the service period completed to the date of death compared to the period from the date of death to what would have been the retirement date of the member (generally the date on which the member would have attained age 65).  This portion of the benefit can be claimed as a tax deduction. Depending on the circumstances, the deduction can be quite large and can be offset against current or future assessable income of the fund.

The Interpretative Decision is significant for two reasons.  First, the Decision expressly permits the trustee to make the decision whether to choose to claim a deduction for the future service portion after the death of the member.  Secondly, the Decision implicitly provides that the trustee can choose to deduct the future service portion even if, in respect of previous financial years, the trustee has chosen to claim a deduction for the insurance premiums.

The choice must be made in the tax return for the financial year in which the death benefit is paid.  However once the choice is made it applies to all members and applies to future financial years (unless the ATO consents to the trustee reverting to the insurance premium deduction method).