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    Super death benefits

    When a person dies, in most cases their super provider pays their remaining super to their nominated beneficiary. Super paid after a person's death is called a 'super death benefit'.

    If the rules of your provider allow it, you can nominate the beneficiary for your super with your provider. This nomination may be non-binding or binding.

    If a binding death benefit nomination is allowed, you can nominate one or more dependants or your legal personal representative to receive your super.

    If a deceased person did not make a nomination, the trustee of the provider may:

    • use their discretion to decide which dependant or dependants the death benefit is paid to
    • make a payment to the deceased's legal personal representative (executor of the deceased estate) for distribution according to the instructions in the deceased's will.

    If a non-binding nomination was made by the deceased, the trustee of the provider may:

    • use their discretion to pay in accordance with the non-binding nomination
    • make a payment to the deceased's legal personal representative (executor of the deceased estate) for distribution according to the instructions in the deceased's will.

    Contact your provider to find out more on death benefit nominations.

    If you're a dependant of the deceased, the death benefit can be paid as either a lump sum or income stream. If you're not a dependant of the deceased, the death benefit must be paid as a lump sum.

    Dependants of the deceased

    Different rules exist for who is a dependant when making a super death benefit payment (superannuation law) and the resulting tax treatment (taxation law).

    Super law sets out who a death benefit is payable to and taxation law sets out how the benefits will be taxed.

    Who is a dependant under superannuation law

    For the purposes of who can receive a death benefit payment, you are a dependant of the deceased if at the time of their death you were:

    • their spouse or de facto spouse
    • a child of the deceased (any age)
    • a person in an interdependency relationship with the deceased.

    An interdependency relationship exists between two people if:

    • they have a close personal relationship
    • they live together
    • one or each of them provides the other with financial support and
    • one or each of them provides the other with domestic support and personal care.

    If you would like to leave your super to someone who is not a dependant under the super laws, contact your provider about making a binding death benefit nomination to have the payment made to your legal personal representative. This will ensure your super is distributed according to your will.

    Who is a dependant under taxation law

    For tax purposes, you are a dependant of the deceased if at the time of their death you were:

    • their spouse or de facto spouse (of any sex)
    • a former spouse or de facto spouse (of any sex)
    • a child of the deceased under 18 years old
    • in an interdependency relationship with the deceased
    • any other person dependant on the deceased.

    An interdependency relationship exists between two people if:

    • they have a close personal relationship
    • they live together
    • one or each of them provides the other with financial support, and
    • one or each of them provides the other with domestic support and personal care.

    Two people may also have an interdependency relationship for tax purposes if they have a close personal relationship, and the reason they do not satisfy one or more of the other requirements of an interdependency relationship listed above is that either or both of them suffer from a physical, intellectual or psychiatric disability.

    Financially dependent on the deceased means you relied on them for necessary financial support. Children over 18 years old must be financially dependent on the deceased to be considered a dependant.

    There are limitations on who can receive a death benefit income stream. Adult children can only receive an income stream if they are under 25 years old and financially dependent on the deceased or have a permanent disability.

    Adult children with a permanent disability can continue to receive an income stream after they turn 25 years old, in all other situations the income stream must change to a lump sum on or before the date they turn 25 years old.

    How to apply

    If you believe you're the beneficiary of a deceased person's super or are the trustee of a person's estate, contact their provider to let them know the person has died and ask them to release the person's super.

    How tax applies

    The tax on a death benefit depends on:

    • whether you were a dependant of the deceased under taxation law
    • whether it is paid as a lump sum or income stream
    • whether the super is tax-free or taxable and whether the provider already paid tax on the taxable component
    • your age and the age of the deceased person when they died (for income streams).

    To find the tax rates that apply to the death benefit you will get, see:

    If you're a non-dependant of Australian Defence Force and police personnel who died in the line of duty, the lump sum super death benefits you receive have the same tax treatment as a benefit paid to a dependant.

    If you're the trustee of a deceased estate, the estate pays tax on behalf of the beneficiaries of the super. The amount of tax the estate must pay is the same as if the payment was paid directly to the beneficiary.

    If you are a dependant of the deceased

    To work out how your super payout will be taxed, you need to know how much of the money in your death benefit is a:

    • tax-free component
    • taxable component the super provider has paid tax on (taxed element)
    • taxable component the super provider has not paid tax on (untaxed element).

    Find out about:

    Tax-free super

    You don’t pay tax on the tax-free component of your super where you:

    • withdraw it as a lump sum
    • receive an account based income stream.

    You will be required to include the tax free component in your assessable income (where it will be taxed at your marginal rate) where you are in receipt of a capped defined benefit income stream and:

    • it is a death benefit income stream where the deceased was aged 60 years old or over at the time of death
    • you are older than 60 years old and the combined total of your tax-free component and taxed element (taxed source) is in excess of your defined benefit income cap.

    Taxable super received as a lump sum

    If you're a dependant of the deceased, you don't need to pay tax on the taxable component of a death benefit if you receive it as a lump sum. Don't include it on your tax return as income.

    Taxable super received as an income stream

    If you are a dependant and you receive a death benefit that is a Capped defined benefit income stream, you will pay tax at the rates shown in the tables below.

    See the table that best applies to you:

    Beneficiary is older than 60 years old and the deceased was any age

    Type of super

    Effective tax rate (including Medicare levy)

    Tax-free component and or Taxable component – taxed element is above the defined benefit income cap

    50% of the amount above the cap is assessed at your marginal tax rates. This is known as assessable amount from your capped defined benefit income stream

    Tax-free component and or Taxable component – taxed element is below the defined benefit income cap

    No tax

    Taxable component – untaxed element

    Your marginal tax rate less tax offset that you may be entitled to

    Beneficiary is under 60 years old and deceased was 60 years old or older at the time of death

    Type of super

    Effective tax rate (including Medicare levy)

    Tax-free component and or Taxable component – taxed element is above the defined benefit income cap

    50% of the amount above the cap is assessed at your marginal tax rates. This is known as assessable amount from your capped defined benefit income stream

    Tax-free component and or Taxable component – taxed element is below the defined benefit income cap

    No tax

    Taxable component – untaxed element

    Your marginal tax rate less tax offset that you may be entitled to

    Beneficiary is under 60 years old and deceased was under 60 years old at the time of death

    Type of super

    Effective tax rate (including Medicare levy)

    Taxable component – taxed element

    Your marginal tax rate less 15% tax offset

    Taxable component – untaxed element

    Your marginal tax rate

    If you are a dependant and you receive a death benefit that is an account-based income stream

    Age of beneficiary and deceased (at the time of death)

    Type of super

    Effective tax rate (including Medicare levy)

    Beneficiary is more than 60 years old or the deceased was 60 years old or older

    Tax-free component

    Tax-free (non-assessable, non-exempt income)

    Beneficiary is 60 years old or older or the deceased was 60 years old or older

    Taxable component – taxed element

    Tax-free (non-assessable, non-exempt income)

    Beneficiary is more than 60 years old or the deceased was 60 years old or older

    Taxable component – untaxed element

    Your marginal tax rate less 10% tax offset

    Both beneficiary and deceased are under 60 years old

    Tax-free component

    Tax-free (non-assessable, non-exempt income)

    Both beneficiary and deceased are under 60 years old

    Taxable component – taxed element

    Your marginal tax rate less 15% tax offset

    Both beneficiary and deceased are under 60 years old

    Taxable component – untaxed element

    Your marginal tax rate

    If you're under 25 years old and started receiving a death benefit as an income stream after 1 July 2007, you must stop the income stream and take the remaining benefit as a lump sum on or before the date you turn 25 years old. The lump sum is tax-free.

    Example: Death benefit (reversionary) income stream

    Anna is 53 years old and receives an annual payment of $130,000 from a capped defined benefit income stream. The income stream was a death benefit (reversionary) income stream where her husband was 61 years old at the time of death. Anna does not receive any other income stream.

    Anna's fund informs her that the income stream is a reversionary income stream and is made up of a tax-free component ($20,000), a taxed element ($100,000), and an untaxed element ($10,000).

    When Anna completes her tax return she will need to work out her defined benefit income cap. As she receives the income stream for the full year, her defined benefit income cap is $100,000.

    Anna needs to:

    add her tax free component and taxed element together. This is her taxed source income and totals $120,000.

    subtract her cap of $100,000 from $120,000 and divide the answer by 2. The result is $10,000.

    When Anna completes her tax return she includes $10,000 as taxable income at label 7M.

    Anna will also need to include the untaxed element of $10,000 at label 7N Anna is not eligible to claim the Australian super income stream tax offset, as her tax-free and taxed element exceeded her defined benefit income cap.

    Effective tax rate paid by Anna

    Type of super

    Effective tax rate (including Medicare levy)

    Assessable capped defined benefit income: $10,000

    Her marginal tax rate

    Untaxed element $10,000

    Her marginal tax rate – no tax offset applicable.

     

    End of example

    Filling out your tax return

    If you got the death benefit through a deceased estate

    If you receive a death benefit through a person's estate, you don't need to include the death benefit in your assessable income. The estate will have paid tax on your behalf.

    If you got the death benefit directly from a super provider

    Your super provider will send you a superannuation income stream payment summary which may show the following:

    • your taxable component  
      • taxed element
      • untaxed element
       
    • tax-free component
    • withholding amount
    • whether you are in receipt of a capped defined benefit income stream where the deceased was older than 60 years old at the time of death.
    If you are not a dependant of the deceased

    To work out how your super payment will be taxed you need to know how much of the money in your super account is a:

    • tax-free component
    • taxable component the super provider has paid tax on (taxed element)
    • taxable component the super provider has not paid tax on (untaxed element).

    Find out about:

    Tax-free super

    You don't need to pay tax on the tax-free component of the death benefit, regardless of how you receive it, your age and the age of the deceased when they died.

    Taxable component received as a lump sum

    If you're not a dependant of the deceased and you receive a death benefit as a lump sum, the taxable component of the payment will be taxed at your marginal tax rate.

    The amount of tax you must pay may be reduced by tax offsets.

    The effective tax rate you will pay

    Type of super

    Effective tax rate (including Medicare levy)

    Taxable component – taxed element

    Your marginal tax rate or 17%, whichever is lower

    Taxable component – untaxed element

    Your marginal tax rate or 32%, whichever is lower

    Taxable super received as an income stream

    From 1 July 2007, a non-dependant can't take the death benefit as an income stream under superannuation law. For non-dependants who had an income stream first paid to them before 1 July 2007, your payment will be treated in the same way as a payment to a dependant.

    Super death benefits paid to a foreign resident (not including former temporary residents) are subject to the same withholding rates as payments made to a resident.

    The payment is deemed to be Australian sourced income, however, if you live in, or you are a tax resident of, a country with a double tax agreement with Australia, there may be no Australian tax imposed.

    Check the taxation laws of the country where you are a tax resident and whether a double tax agreement exists between Australia and that country.

    How to apply

    If you believe that you are the beneficiary of a deceased person's super or are the trustee of a person's estate, you should contact their super provider to let them know that the person has died and ask them to release the person's super.

    If the deceased had a credit balance of ATO-held super, refer to more information on withdrawing your ATO-held super – Application for payment of ATO-held superannuation money.

    See also:

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      Last modified: 29 Aug 2019QC 37785