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The super 'death tax' you need to be aware of

You’ve worked hard to build up your super to one day reap the benefits. But if you pass away sooner than you expected, the remainder of your super will be paid as a death benefit to your nominated beneficiaries (if you have them) or your estate. If your super death benefit is paid out to a “tax dependant”, it is received entirely tax-free. A tax dependant includes:

  • Your spouse, married or de-facto, whether the same or opposite sex

  • Your children (including step-children) under age 18

  • A financial dependent

  • A person in an interdependent relationship with you

However, if a non-tax dependant receives your super death benefit as a lump sum, any tax-free component remains tax-free, but the taxable component (taxed element) is taxed at 17% (including a Medicare Levy). And any taxable component (untaxed element) is taxed at 32% (including a Medicare Levy). Strategies to minimise tax on your super death benefit If your super death benefit is likely to go to a non-tax dependant (such as an adult child), one option you have is to withdraw some of your super and gift it. After age 60, any withdrawals you make from super are generally tax-free. What you do with your money after this point is up to you. Another option is to consider a re-contribution strategy which generally involves the withdrawal from your super as a lump sum and then re-contributing back into super as a non-concessional contribution. Doing this can help increase the tax-free component of your super, and subsequently lower any potential tax liability faced by a non-tax dependant beneficiary. The tax treatment of death benefits can vary depending on your circumstances and those who will receive your death benefit. Before you make any decisions, please get in touch with us.


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