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Taxation of super benefits

Taxation of super death benefits

Section: 7.3

Super death benefits paid to a tax dependant


Age of deceased
at time of death

Type of death
benefit

Age of
recipient
Taxation of taxable component
Taxed element Untaxed element
Any age Lump sum Any age 0% NANE 0% NANE
Age 60
and above
Income stream Any age 0% NANE MTR less 10% tax offset
Below age 60 Income stream Age 60 and above 0% NANE MTR less 10% tax offset
Below age 60 Income stream Below age 60 MTR less 15% tax offset MTR (no tax offset)

Super death benefits paid to a tax non-dependant*


Age of deceased
at time of death

Type of death
benefit

Age of
recipient
Taxation of taxable component
Taxed element Untaxed element
Any age
 
Lump sum
 
Any age
 
Max 15%
 
Max 30%
 
Any age Income stream Any age Not permitted from 1 July 2007. Death benefit income streams commenced prior to 1 July 2007 will be taxed in the same manner as if paid to a dependant.

NANE: Non-assessable non-exempt income (not subject to tax).
MTR: Marginal tax rate.
For all non-zero tax rates, Medicare levy may also apply. For all payments, the tax-free component is NANE. These payments are not subject to tax.
* Refer to section 14.8.

Note: A special rule may apply to allow 'pension' style proportioning rules to continue after a client who was receiving an account based, allocated, or term allocated pension dies. See section 7.15 for further details.

Taxation of child death benefit pensions
Super income stream death benefits 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 then commute the income stream as a tax-free superannuation lump sum at this point. Prior to age 25, the child has a number of options, as outlined in the table in section 14.5.

Implications of rolling over death benefit income streams

Only the spouse of a deceased member can elect to rollover a death benefit income stream (either to an accumulation account or to a new super income stream).

Where a spouse rolls over their death benefit income streams to commence a new income stream, it is important to note that the new income stream is no longer a death benefit income stream. This may have tax implications, including:

  • where the spouse is under preservation age, the 15% tax offset that applies to the taxable component of death benefit income stream payments will no longer apply.
  • where the member had reached age 60 but the spouse is under 60, the tax free status that applies to death benefit income stream payments will no longer apply.

Death benefits paid to a deceased client's estate
Where a death benefit is paid to a legal personal representative as executor of an estate, no tax is withheld by the trustee of the super fund. The tax treatment when received by the estate is as follows:

  • To the extent that death benefit dependants will benefit (or could be expected to) from the death benefit, it is non-assessable non-exempt income of the estate and not taxed.
  • To the extent that non-death benefit dependent beneficiaries will benefit (or could be expected to) from the death benefit, it is subject to the same taxation in the estate as a non-death benefit dependant would pay had they received the benefit directly. However, Medicare levy does not apply.

Superannuation death benefits paid to a deceased client's estate which are then distributed to beneficiaries are not assessable in the hands of the beneficiaries.

Last modified: Tuesday, May 2, 2017