www.esuperfund.com.au

Taxation


chat pdf print

The taxation implications of nominating a particular Beneficiary to receive your Super Benefit on death are detailed below:

 
 
Spouse

Lump Sum Payment on Death

Where your Super Benefit is paid to your Spouse as a lump sum it is tax free to them.

Pension Income Stream on Death

Where your Super Benefit is paid to your Spouse as a Pension it is taxed as follows:

  • If either the Spouse or Deceased is over 60 at the date of death, the Pension is paid tax free.
  • If both the Spouse and the Deceased are under 60 at the date of death, the Pension is taxed at the Spouses' tax rate less any Tax Free amount and receives a Pension rebate of 15%.  Once the Spouse turns 60, the Pension is paid tax free. See Note 2 below for an example on how to calculate the tax on Pension Payments.

 
 
Any Child Under 18

Lump Sum Payment on Death

Where your Super Benefit is paid to your Child who is under 18 as a lump sum, it is tax free to them.

Pension Income Stream on Death

Where your Super Benefit is paid to any child under 18 as a Pension it is taxed as follows:

  • If the Deceased was over 60 at the date of death, the Pension is paid tax free.
  • If the Deceased was under 60 at the date of death, the Pension is taxed at the child's tax rate less any Tax Free amount and receives a Pension rebate of 15%. It is noted that a Pension can only be paid to a Child up to the age of 25. After that time they must take the remaining Super Benefit as a lump sum. See Note 2 below for an example on how to calculate the tax on Pension Payments.

 
 
Any Child aged between 18 and 25 that is Financially Dependent on you

Lump Sum Payment on Death

Where your Super Benefit is paid to any Child aged between 18 and 25 that is Financially Dependent on you as a lump sum it is tax free to them.

Pension Income Stream on Death

Where your Super Benefit is paid to any child aged between 18 and 25 as a Pension it is taxed as follows:

  • If the Deceased was over 60 at the date of death, the Pension is paid tax free.
  • If the Deceased was under 60 at the date of death, the Pension is taxed at the child's tax rate less any Tax Free amount and receives a Pension rebate of 15%. It is noted that a Pension can only be paid to a Child up to the age of 25. After that time they must take the remaining Super Benefit as a lump sum. See Note 2 below for an example on how to calculate the tax on Pension Payments.

 
 
Any Child aged between 18 and 25 that is NOT Financially Dependent on you

Lump Sum Payment on Death

Where your Super Benefit is paid to any Child aged between 18 and 25 (who is NOT financially dependent on you) as a lump sum, the Taxable Component of the payment is taxed at 17%. It is noted that the Tax Free Component of the payment remains tax free. See Note 1 below for an example on how to calculate the tax on Lump Sum Payments.

Pension Income Stream on Death

You cannot nominate any Child aged between 18 and 25 (who is NOT financially dependent on you) to receive your Super Benefit on death as a Pension Income Stream.

Any Child aged over 25 that is Financially Dependent on you

Lump Sum Payment on Death

Where your Super Benefit is paid to any Child aged over 25 (that is Financially Dependent on you) as a lump sum it is tax free to them.

Pension Income Stream on Death

You cannot nominate any Child over the age of 25 to receive your Super Benefit on death as a Pension Income Stream.

 
 
Any Child aged over 25 that is NOT Financially Dependent on you

Lump Sum Payment on Death

Where your Super Benefit is paid to any Child who is over 25 (that is NOT Financially Dependent on you) as a lump sum, the Taxable Component of the payment is taxed at 17%. It is noted that the Tax Free Component of the payment remains tax free. See Note 1 below for an example on how to calculate the tax on Lump Sum Payments.

Pension Income Stream on Death

You cannot nominate any Child over the age of 25 to receive your Super Benefit on death as a Pension Income Stream.

 
 
Any Child Permanently Disabled irrespective of age

Lump Sum Payment on Death

Where your Super Benefit is paid to your Child who is Permanently Disabled (irrespective of age) as a lump sum, it is tax free to them.

Pension Income Stream on Death

Where your Super Benefit is paid to any Child who is Permanently Disabled (irrespective of age) as a Pension it is taxed as follows:

  • If either the recipient or Deceased was over 60 at the date of death, the Pension is paid tax free.
  • If both the recipient and the Deceased were under 60 at the date of death, the Pension is taxed at the child's tax rate less any Tax Free amount and receives a Pension rebate of 15%.

 
 
Any person who was Financially Dependent on you just before death

Lump Sum Payment on Death

Where your Super Benefit is paid to any person that was a Dependent just before death (ie relied on you for financial assistance) as a lump sum it is tax free to them.

Pension Income Stream on Death

Where your Super Benefit is paid to any person that was a Dependent just before death (ie relied on you for financial assistance) as a Pension it is taxed as follows:

  • If either the recipient or Deceased was over 60 at the date of death, the Pension is paid tax free.
  • If both the recipient and the Deceased were under 60 at the date of death, the Pension is taxed at the recipient's tax rate less any Tax Free amount and receives a Pension rebate of 15%. See Note 2 below for an example on how to calculate the tax on Pension Payments.

 
 
Any person with whom you has an "Interdependency Relationship" just before death

Lump Sum Payment on Death

Where your Super Benefit is paid to any person with whom you had an "Interdependency Relationship" just before death as a lump sum it is tax free to them.

Pension Income Stream on Death

Where your Super Benefit is paid to any person with whom you has an "Interdependency Relationship" just before death as a Pension it is taxed as follows:

  • If either the recipient or Deceased was over 60 at the date of death, the Pension is paid tax free.
  • If both the recipient and the Deceased were under 60 at the date of death, the Pension is taxed at the recipient's tax rate less any Tax Free amount and receives a Pension rebate of 15%. See Note 2 below for an example on how to calculate the tax on Pension Payments.

 
 
Your Estate via your Legal Personal Representative

Lump Sum Payment on Death

Where your Super Benefit is paid to your estate (via your Legal Personal Representative) on death which in turn pays the benefit to any person detailed above as a lump sum it will be taxed in their hands as detailed above. Where your Super Benefit is paid to your estate (via your Legal Personal Representative) on death which in turn pays it to any person NOT detailed above (e.g. friend, nephew, niece, grandchild etc) as a lump sum, the Taxable Component of the payment is taxed at 17%. It is noted that the Tax Free Component of the payment remains tax free. See Note 1 below for an example on how to calculate the tax on Lump Sum Payments.

Pension Income Stream on Death

You cannot nominate your Estate (via your Personal Legal Representative) to receive your Super Benefit on death as a Pension Income Stream.

 
 
Note 1 - Calculating tax on Lump Sum Payments where the lump sum is not tax free

By way of background it is important to understand that your Super Benefit is made up of two components, namely a Tax Free Component and a Taxable Component. The Tax Free Component typically comes from after tax personal Non Concessional Contributions made by you over time. The Taxable Component typically comes from Concessional Contributions made by you over time which include Employer Contributions and Salary Sacrifice Contributions. Any Lump Sum withdrawals must be paid in the same proportion as the Tax Free and Taxable Components of a Member's Super Benefit in the SMSF. This requirement is known as the "Proportioning Rule". Under the "Proportioning Rule" tax payable on a Lump Sum Payment on death (where applicable), is calculated as follows:

  • Step 1: Determine the Tax Free Component of the Deceased' Super Benefit
  • Step 2: Determine the Taxable Component of the Deceased' Super Benefit
  • Step 3: Total of the Taxable and Tax Free Components makes up the Deceased' Total Super Benefit
  • Step 4: Calculate the Tax Free Component percentage equal to Step 1 divided by Step 3
  • Step 5: Calculate the Taxable Component percentage equal to Step 2 divided by Step 3
  • Step 6: Multiply the Lump Sum received by the Tax Free percentage at Step 4. The result is Tax Free.
  • Step 7: Multiply the Lump Sum received by the Taxable percentage at Step 5. The result is taxed at 17%

Example:

Barney has a Super Benefit made up of a Taxable Component (usually from Concessional Contributions made to the SMSF by your Employer) of $400,000 and a Tax Free Component (usually from Non Concessional Contributions made by you from after tax income) of $100,000. This means Barney's Taxable percentage is 80% ($400,000 / $500,000) and his Tax Free percentage is 20% ($100,000 / $500,000). Barney has executed a Death Benefit Agreement, nominating his son, Barney Junior, who is 30 (and NOT Financially Dependent on him) to receive his Super Benefit on death. This means that 80% of the payment to Barney's son on his death will be taxable at 17%. This equates to a tax bill of $68,000 (ie. 17% x $400,000).

 
 
Note 2 - Calculating tax on Pension payments where the Pension is not tax free

By way of background it is important to understand that your Super Benefit is made up of two components, namely a Tax Free Component and a Taxable Component. The Tax Free Component typically comes from after tax personal Non Concessional Contributions made by you over time. The Taxable Component typically comes from Concessional Contributions made by you over time which include Employer Contributions and Salary Sacrifice Contributions. Any Pension withdrawals must be paid in the same proportion as the Tax Free and Taxable Components of a Member's Super Benefit in the SMSF. This requirement is known as the "Proportioning Rule". Under the "Proportioning Rule" tax payable on Pension payments on death (where applicable ie recipient or deceased is under 60), is calculated as follows:

  • Step 1: Determine the Tax Free Component of the Deceased' Super Benefit
  • Step 2: Determine the Taxable Component of the Deceased' Super Benefit
  • Step 3: Total of the Taxable and Tax Free Components makes up the Deceased' Total Super Benefit
  • Step 4: Calculate the Tax Free Component percentage equal to Step 1 divided by Step 3
  • Step 5: Calculate the Taxable Component percentage equal to Step 2 divided by Step 3
  • Step 6: Multiply the Pension Payment by the Tax Free percentage at Step 4. The result is Tax Free.
  • Step 7: Multiply the Pension Payment by the Taxable percentage at Step 5. The result is taxed at the Beneficiaries tax rate less a 15% Pension Rebate.

Example:

Barney is 58 and has a Super benefit of $500,000. His Super Benefit is broken down into a "Taxable Component" of $400,000 (built up from Employer Contributions) and a Tax Free Component of $100,000 (built up from Personal Non Concessional Contributions). This means that 80% ($400,000 / $500,000) of Barney's Super Benefit is Taxable and $20% ($100,000 / $500,000) is Tax Free. Barney has executed a Death Benefit Agreement, nominating his Spouse Roxy (also 58), to receive his Super Benefit on death as a Pension. On Barney's death (assuming he is under 60), Roxy will commence to receive a Pension Income from the SMSF. Roxy must access a minimum 4% of the Barney's Super Benefit as a Pension, that is $20,000. This means that 80% of the Pension will be Taxable (ie $16,000) and 20% will be Tax Free (ie $4,000) to Roxy. In addition Roxy is allowed a 15% "Pension Rebate" on the Taxable Component of the Pension further reducing the tax bill. Assuming Roxy is on the 34.50% tax rate she would be assessable on $16,000 at 34.50% resulting in $5,520 in tax. Given Roxy is also entitled to a 15% Pension Rebate on the taxable portion of the Pension of $16,000 (ie 15% of $16,000 or $2,400), the tax bill is further reduced to only $3,120. This means that Roxy pays tax of $3,120 on a $20,000 Pension Payment in the above example. After Roxy turns 60 the Pension Payments will be tax free.

 
 
Death Benefits paid as a Pension

A Death Benefit Pension is commenced when death benefits are received from the deceased in the form of Pension. A Death Benefit Pension is essentially a Simple Account Based Pension, therefore it is subject to the Transfer Balance Cap. The value of a Death Benefit Pension paid to a dependent will be credited to the dependent’s transfer balance account. Beneficiaries will need to manage their affairs to ensure that a Death Benefit Pension does not result in exceeding their transfer balance cap.

Importantly, a superannuation death benefit cannot be held in an accumulation interest. This contravenes the regulatory requirement to cash the benefit out of the system as soon as practicable.