Most of you reading this will have some form of Superannuation and most likely have an insured benefit in addition to your current account balance.  In the event of your death, how this is taxed will depend on who you nominated as the beneficiary of your account.

(We addressed what a beneficiary is in a previous blog : https://wealthpartners.net.au/2013/11/01/where-does-my-superannuation-money-go-if-i-die/)

To briefly recap, a beneficiary can be:

  • Your dependents or legal representatives(s)
  • Spouse – a person to whom you are legally married or in a de facto relationship. Gender is irrelevant
  • Children – your child (or your spouse’s child) of any age, including an adopted child, foster child, ward or child within the meaning of the Family Law legislation
  • Any other person totally or partially financially dependent upon you at the time of your death, or
  • Any other person you may have an interdependent relationship or,
  • your estate.

The death benefit payment is broken into two components; a tax-free component and a taxable component.  A tax free component usually arises from a personal after tax contribution to Super.  A taxable component arises from Employer, Salary Sacrifice , Personal Deductible Contributions and the growth in your Superannuation fund.

The taxable component may be further split into two elements: a taxed element and an untaxed element. A taxed element arises where contributions or earnings tax has been incurred.  An Untaxed Element arises where the Super fund claims a tax deduction for an insurance premium.

The tax treatment of a lump-sum superannuation death benefit will depend on whether the recipient is a dependant for tax purposes or a non-dependant. Again, it is so important to consider who you nominate as beneficiary to avoid unintended tax consequences.

The tax rates below indicate the vast difference between nominating a dependant over a non dependant

Beneficiary

Component

Maximum Tax Rate

Tax Dependant

All

Tax Free

Non-Tax Dependant

Tax Free

Tax Free

Taxable – Taxed Element

15%1

Taxable – Untaxed Element

30%1

1 Plus Medicare levy of 1.5%, unless paid to the deceased’s estate.

Monitoring the tax consequences of your Superannuation fund is your responsibility not the Trustees.  Your insurance benefit is an asset and the taxation of your entire benefits needs to be thoughtfully managed.  Through careful consideration of who your beneficiaries are and the applicable the tax consequences you can mitigate or remove unintended tax consequences.

Be aware of the eligibility of your beneficiaries and the tax consequences of your instructions.  Importantly, review these arrangements on a regular basis.

If you have any questions on the above or your own personal circumstances, contact me via e-mail on davidl@wealthpartners.net.au.

 

David Luciani
Corporate Services Specialist

Follow David on Twitter @DavidGLuciani