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Taxation of super benefits

Deduction for increased amount (anti-detriment payment) of super lump sum death benefit

Section: 7.7

Anti-detriment payments abolished - Federal Budget

Effective 1 July 2017

Anti-detriment provisions will be abolished from 1 July 2017, effectively removing the ability of superannuation funds to increase lump sum superannuation death benefits when paid to eligible beneficiaries.

The anti-detriment provisions allow a superannuation fund to claim a corresponding tax deduction where it is able to increase the amount of a member's death benefit paid to certain eligible beneficiaries to compensate for the impact of tax on contributions.

The Government says removing the anti-detriment provision will better align the treatment of lump sum death benefits across all superannuation funds and the treatment of bequests outside of superannuation.

A complying super fund can claim a tax deduction to ensure that the amount of death benefits paid to a spouse, former spouse or child (of any age) is not reduced as a result of contributions being taxed. Where the benefit is paid to the deceased's estate, the deduction is only available to the extent that the spouse, former spouse or child can reasonably be expected to benefit from the estate. For more information refer to ATO ID 2012/10.

The deduction is available to the fund if it increases a lump sum death benefit (or does not reduce the death benefit) so that the amount of the death benefit is the amount that the fund could have paid if no tax were payable on taxable contributions. The increased amount is called the tax saving amount (or anti-detriment amount).

Calculating the anti-detriment amount
To calculate the increased death benefit amount a trustee may:

  • determine the actual amount of contributions tax deducted from the deceased member's account (the audit method)
  • apply to the ATO for a private ruling, or
  • use a formula, such as that set out in ATO ID 2007/219 below.
Increased superannuation lump sum death benefit formula
[(0.15 x P) / (R - 0.15 x P)] x C
where:
P = the number of days in component R that occur after 30 June 1988.
R = the total number of days in the service period that occur after 30 June 1983.
C = the taxable component of the lump sum, ignoring the increased benefit and excluding the actual (if any) insured amount for which deductions have been claimed under.

Note: See section 14 for more detail on super estate planning.

Last modified: Tuesday, May 2, 2017