The mini-budget of October 2012, provided an important announcement that adds confidence to the SMSF industry:

From the 1st of July 2012, a tax exemption will apply following the death of an SMSF member in receipt of a pension until that pension has been paid out of the fund. That is, the “pension/ tax exemption” will continue following the death of a member.

In TR 2011/D3 the ATO stated that :

A pension ceases as soon as the member in receipt of the pension dies, unless a dependent beneficiary of the deceased is automatically entitled under the superannuation fund deed or the rules of the pension to receive a pension on the death of the member.

Where possible , appropriate nominations were put in place to address these issues.

The government has listened to concerns.

The MYEFO announced that:

The Government will amend the law to allow the tax exemption for earnings on assets supporting pensions to continue following the dealth of a fund member in the pension phase until the deceased members benefits has been paid out of the fund. Once made law, this will apply from the 1st of July 2012.

This will rectify the issues faced by sole members who do not have the option of nominating a reversionary beneficiary.

Although it appears that reversionary pensions may no longer be required to safeguard against loss of tax exemption of pensions, we will look further where the death of member may result in merging of interests / benefits with different ratios of tax free and taxable components.