First State Super Logo

Home

Taxation of super benefits

Tax treatment of death benefit income streams

Section: 7.5

The tax-free component of any death benefit payment is tax-free. The tax treatment of taxable component depends on the age of the deceased and the recipient and whether the taxable component consists of a taxed element or untaxed element.

Age of deceased (at time of death) Age of recipient Tax treatment of taxable component (taxed element) Tax treatment of taxable component (untaxed element)
Age 60 or above Any age Non-assessable non-exempt income: No tax. Marginal tax rate less 10% tax offset
Under age 60 Age 60 or above Non-assessable non-exempt income: No tax. Marginal tax rate less 10% tax offset
Under age 60 Marginal tax rate less 15% tax offset Marginal tax rate (no tax offset)

Tax treatment of commutations from death benefit income streams

From 1 July 2017, commutations withdrawn from a death benefit income stream are always treated as a superannuation lump sum death benefit for tax purposes.

Prior to 1 July 2017, commutations of death benefit income streams were treated as death benefits for tax purposes where the commutation occurred within the 'prescribed period', while later commutations were treated as member benefits for tax purposes.

The prescribed period (which has been removed from 1 July 2017) was generally the later of:

  • six months after the death of the deceased person, or
  • three months after the grant of probate of that deceased person's will or letters of administration of that deceased person's estate, or
  • if the payment of the benefit is delayed because of legal action about entitlement to the benefit - six months after the legal action ceases, or
  • if the payment of the benefit is delayed because of reasonable delays in the process of identifying and making initial contact with potential recipients - six months after that process is completed.

Taxation of commutations from child death benefit pensions

Super income stream death benefit paid to a child under the age of 25 must cease once the child reaches age 25 (unless the child has a prescribed disability). The child must commute the income stream as a tax-free superannuation lump sum at, or any time before, this point.

Last modified: Wednesday, July 24, 2019