Background to ruling
X was a member of an SMSF.
Before the 2008-2009 financial year, X had lived with Y on a genuine domestic basis as a same-sex couple.
The definition of 'spouse' changed from the 2008-2009 financial year to include same-sex couples.
The question for the ATO was whether Y was the 'former spouse' of X for the purposes of determining the taxation treatment of an SMSF death benefit that Y received during the 2010-2011 financial year.
Tax treatment of superannuation death benefits
When an SMSF member dies, the payment of that member's money is a 'superannuation death benefit'. This amount can be paid as a lump sum, or an income stream. If the amount is paid to someone who is the member's 'death benefits dependant', then concessional tax benefits apply to the payment. 'Death benefits dependant' is defined to include the deceased SMSF member's spouse or former spouse.
Recognition of same-sex relationships
Before the 2008-2009 financial year, same-sex partners of SMSF members were excluded from the definition of 'death benefits dependant' — unless they were financially dependent on the SMSF member or living with them in an interdependency relationship.
However, the law about this was amended from the 2008-2009 financial year so that 'spouse' now includes someone who, although not legally married to the SMSF member, lives with them on a genuine domestic basis as a couple — whether that person is of the same or opposite sex.
|The definition that applies before and after the change|
|Before 2008-2009 financial year||From the 2008-2009 financial year|
'Spouse' and 'former spouse' includes living together on a genuine domestic basis as husband and wife
'Spouse' and 'former spouse' includes Living together on a genuine domestic basis as a couple
Why was a ruling required?
Although the legislative changes discussed above provided for concessional tax treatment for the payment of death benefits to same-sex partners, the ruling was required as to whether a person was the former spouse of an SMSF member was to be determined with regard to the definition of spouse applying at:
- the time of the relationship; or
- the time of the death benefit payment.
In this case, Y lived with X before the definition of 'spouse' was changed in the 2008-2009 financial year. This mattered because:
- if the current definition of 'spouse' applied, then Y would be the 'former spouse' of X, and entitled to the concessional tax treatment.
- if the earlier definition applied, then Y would not be the former spouse and would not be entitled to the concessional tax treatment.
The ATO considered whether the law was meant to operate prospectively or retrospectively, and noted that the changes to the law did not show any intention to apply retrospectively.
The ATO acknowledged that the legislation did not impose any constraints on the period to which the new definition operated and allowed the decision to be made on the basis of the facts before the operation of the new definition of 'spouse'. Therefore, the definition of 'spouse' at the time of the death benefit payment could be used to determine whether Y was the 'former spouse' of X.
In forming this view, the ATO considered that this did not involve a retrospective operation of the law. Rather it viewed the adoption of the amended definition of 'spouse' as a prospective operation of this amended definition, with a reference to past facts.
Accordingly, Y was the 'former spouse' of X for the purposes of the payment and was entitled to the concessional tax treatment.
What does this ruling mean?
This ruling means that former same-sex partners of SMSF members whose relationships began before the 2008-2009 financial year will be considered as the 'former spouses' for the purposes of being a 'death benefits dependant', and will enjoy tax concessions on these benefits.
The ruling confirms that the amendments to the ITAA have removed any discrimination and ensured that 'spouses' of either gender will be treated the same.
More information from Maddocks
For questions or more information about the above article, please call Maddocks in Melbourne (03 9288 0555) and ask for a member of the Superannuation Team.
More Cleardocs information on SMSFs
You can read other articles concerning superannuation and SMSFs here.
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 This definition applies under paragraph 302-195(1)(a) of the Income Tax Assessment Act 1997 (Cth) (ITAA 97)
 ATO ID 2011/83
 Paragraph 302-195(1)(a) of the ITAA 97
 Paragraph 302.195 of the ITAA 97
 Paragraph 302-195(1)(a) of the ITAA 97