Can journal entries constitute payment of a death benefit?

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The ATO, in its Interpretive Decision ATO ID 2015/2 has made it clear that to be a superannuation death benefit, the benefit must be paid to the taxpayer. Journal entries are insufficient to establish that a superannuation fund has paid a superannuation death benefit for income tax purposes.


The two members of a self managed super fund (SMSF) were a married couple. On the death of one member, the trustee of the SMSF decided that the remaining member (“the taxpayer”) should be paid a death benefit. The benefits of the deceased member consisted of publicly listed shares and cash.

The taxpayer wished to remain in the SMSF and to recontribute the death benefit directly to their own member account. In order to avoid transaction fees, the taxpayer wanted to know whether it was possible to transfer the moneys from the deceased member’s account to the taxpayer’s own account by way of journal entry only.


Section 307-5(4) ITAA 97 states that a superannuation death benefit is a payment to a taxpayer from a superannuation fund, after another person’s death because the other person was a fund member.

The term “payment” is not defined in the ITAA 97.

The ATO turned to the common law meaning of that term. The principle stated in Re Harmony and Montague Tin and Copper Mining (Spargo’s) (1873) 8 LR Ch App 407 held that a payment will occur where two parties both have a present liability or legal obligation to the other (ie mutual liabilities or mutual obligations exist) and by agreement they set off the liabilities against each other using a book entry.

In AAT Case 11709 35 ATR 1074, it was held that where a superannuation fund has a present obligation to pay a member their accumulated credit either as a pension or as a lump sum, there is no present obligation on the part of the member and therefore no mutual obligation.

So, there is no mutual liability in this case because the taxpayer does not have a liability to the SMSF. Therefore the transaction (the book entry) does not represent a superannuation death benefit and cannot be taxed as one.

Further Discussion

In addition Regulation 6.17(2) of the Superannuation Industry (Supervision) Regulation 1994 (SISR) require that a member’s benefits must be paid by being cashed in accordance with Division 6.3.

For similar reasons to those appearing in ATO ID 2015/2, the ATO in its Interpretive Decision ATO ID 2015/3 concluded that where the benefits of a deceased member of a self-managed superannuation fund are to be paid as a death benefit to the taxpayer, regulation 6.21 of the SISR does not allow the benefit to be transferred to the taxpayer’s member account simply by way of journal entries in the books of the fund. The death benefit must actually be paid to the taxpayer by transfer of ownership of the deceased member’s assets to the taxpayer.

The circumstances considered by the ATO in ID 2015/3 were that the taxpayer and the taxpayer’s spouse were both members of the same self-managed superannuation fund. The taxpayer’s spouse died, and the spouse’s benefits were to be paid out as a death benefit to the taxpayer. The benefits of the deceased member again consisted of publically listed shares and cash.

The ATO argued that Regulation 6.21(1) of SISR provides that a member’s benefits in a regulated superannuation fund must (with one exception) be “cashed as soon as practicable” after the death of the member.

Under Regulation 6.21(2) SISR the benefits may be cashed in any combination of one or more lump sums, pensions and purchased annuities. Generally the definition of “lump sum” includes an asset (Regulation 6.01(2)).

The term “cash” is not defined in SISA or in SISR. However, the ATO is of the opinion that its use in SISR suggests that the benefits need to be paid out of the system. The ATO has said in SMSFD 2011/1, that “for the purposes of Division 6.3, “cashing” involves a member’s benefits in a fund being “paid”. This indicates that cashing involves an SMSF making a payment which reduces the member’s benefits in the fund.”

Consequently, transferring the shares and cash to the taxpayer’s account from the deceased member’s account via a journal entry would not amount to “cashing” benefits and therefore Regulation 6.21 of SISR would not be satisfied.

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