The Australian Taxation Office’s (ATO) draft ruling TR 2011/D3 will have a greater significant impact on self-managed superannuation funds (SMSFs) than any other type of retirement savings structure, according to HLB Mann Judd head of wealth management Michael Hutton.
“This ruling really is mainly relevant for SMSFs. It doesn’t really apply to the big managed superannuation funds because they would rarely have to sell assets to pay out a deceased member’s estate,” Hutton explained.
“It’s not specific to SMSFs but I can only actually see it applying to SMSFs,” he said.
Hutton points out that the larger super funds in general would usually be receiving a greater and more consistent volume of inflows allowing them to avoid the need to sell down existing assets to pay out a death benefit.
Under draft ruling TR 2011/D3 assets sold down from a super fund to pay a death benefit due to the death of the sole surviving fund member will be eligible to attract a capital gains tax liability on the sale as the fund will have been deemed to have reverted back into accumulation phase.
Hutton said the draft ruling highlights the fact superannuatioin funds are not really designed to be an estate planning tool and other vehicles such as a family trust may be better suited to this purpose.
He also pointed out individuals may want to rethink the wisdom of taking out life insurance inside of super if the person is the last member of the fund and has no tax dependants as a result of draft ruling TR 2011/D3.
In these circumstances having life cover outside of superannuation may be a more tax effective strategy, Hutton said.
