How does a Super Fund factor into a deceased estate? Adelaide accountant Kym Nitschke explains how superannuation death benefits work.

In most cases, the deceased’s superannuation does not form part of the estate. That is unless no beneficiary has been named for it. In this event, the trustee of the Super Fund may elect to pay it to the state under the terms of the trust deed and super rules.

How is the Super Fund Taxed?

Taxing the Super Fund largely depends upon:

– Whether the beneficiary is a dependant or non-dependant

– Whether the benefits are paid out in a lump sum or as an income stream

Death Benefits Paid to a Dependant

Who qualifies as a dependant?

– Surviving spouse or de facto

– Former spouse or de facto

– A child of the deceased who’s under the age of 18

– An individual who was financially dependent on the deceased

A lump sum payment is not taxable, so you do not need to include it on your tax return.

An income stream may be taxed as follows:

Age of Beneficiary and Deceased

Type of Super

Effective Tax Rate (Including Medicare Levy)

Either the beneficiary or the deceased is more than 60 years of age

Taxable component: taxed element

0%

Taxable component: untaxed element

Your marginal tax rate less 10% tax offset

When beneficiary and deceased are both under 60 years of age

Taxable component: taxed element

Your marginal tax rate less 15% tax offset

Taxable component: untaxed element

Your marginal tax rate

 

Death Benefits Paid to a Non-Dependant

It does get a bit more complicated to try to work out the tax on death benefits paid in a lump sum to a non-dependant.

First off, make sure you determine the following:

– The tax-free component

– The taxable component which the fund has paid tax on (the ‘taxed element’)

– The taxable component which the fund has NOT paid tax on (the ‘untaxed element’)

Each component of the lump sum will be taxed as follows:

Type of Super

Effective Tax Rate

Tax-Free Component

Not Taxed

Taxable component: taxed element

Your marginal tax rate or 15%, whichever is lower, plus the Medicare levy

Taxable component: untaxed element

Your marginal tax rate or 30%, whichever is lower, plus the Medicare levy

 

To find out more about how superannuation death benefits can affect your tax return this year, contact Nitschke Nancarrow to set up an appointment.

Call our office on (08) 8379 9950 or send me an email.

Kym Nitschke

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