Death Benefits
Death Beneifts
The new simplified superannuation rules which take effect from the 1st July 2007 introduce a number of changes on how superannuation is taxed upon the death of a superannuant.
Superannuation accounts on the 1st July will be divided between an exempt component and a taxable component. The exempt component is received by the beneficiary tax-free while the amount of tax payable on the taxable component will depend upon whom it is paid to.
The table below sets out the varies alternatives on how a death benefit can be paid, to whom it is paid and the amount of tax payable on the taxable component:
| Death Benefit paid as | Beneficiary | Tax Treatment |
| Lump sum ETP while deceased was in super mode | Tax Dependant | Tax-free |
| Non-tax Dependant | 15% | |
| To Estate | To extent dependants may reasonable be expected to benefit from the estate | |
| Lump sum ETP while deceased was in pension mode | Tax Dependant | Tax-free |
| Non-tax Dependant | 15% | |
| To Estate | To extent dependants may reasonable be expected to benefit from the estate | |
| Pension paid to a | Non-tax Dependant | Not allowed – pay as lump sum only |
| 55 – 59 Tax Dependant | (Pension-DA) x MTR – 15% rebate | |
| 60 plus Tax Dependant | Tax-free | |
| Reversionary Pension paid to a tax dependant PB is the deceased pensioner RB is the reversionary beneficiary |
Non-tax Dependant | Not allowed – pay as lump sum only |
| PB < 60 & RB < 60 | (Pension-DA) x MTR – 15% rebate until 60 | |
| PB < 60 & RB > 60 | Tax-free | |
| PB > 60 | Tax-free |
The rules make superannuation paid to a tax dependent tax-free. Tax dependents are limited to a spouse, children under 18, financially dependant person and somebody with whom the deceased had an interdependent relationship with.
Example; Death benefit with a taxable component of $500,000 paid to a non-tax beneficiary would result in a $75,000 tax liability, this compares to $Nil if this benefit was paid to a tax dependant.
Therefore, planning to minimise death taxes is an essential part of your estate and superannuation planning.
For an interview to discuss the strategies available to minimise death taxes or how a self-managed superannuation fund could suit you, please call Gregory Enright at Enright Superannuation Accountants on 6686 4744.