When it comes to super death benefits there are two overarching areas of law which affect beneficiaries – superannuation law which sets out who a death benefit is payable to, and taxation law which sets out how the death benefit will be taxed.
Your super fund can pay a death benefit to two types of beneficiary – a dependant or non-dependant.
Under superannuation law a dependant is someone who, at the time of your death, was your spouse or de facto partner; one of your children (any age); or some other person who you were in a financial, domestic, or personal, interdependency relationship with.
Under taxation law the definition of dependant is broader. Someone is considered a tax dependant if, at the time of your death, they were your current or former spouse or de facto partner (of any sex); any child aged under 18; someone who was in an interdependency relationship with you; or any other person who was dependent on you.
A dependant can choose whether they receive a super death benefit as a lump sum or a pension. Excluding a child with a permanent disability, the income stream option must change to a lump sum on or before the date a child turns 25 years old.
As tax has already been paid on super every time contributions were made, both the taxed and untaxed components of your death benefit are paid to a dependant beneficiary without further tax payable.
If the death benefit is taken as an account-based income stream, a dependant beneficiary aged 60+ will be required to pay tax at marginal rates (with a tax offset of 10%) on the taxable component. If aged under 60, the taxed element attracts tax at marginal rates (with a tax-offset of 15%).
A non-dependant can only receive a lump sum benefit which will be taxed at the maximum rate of 15% for the taxed element and 30% for the untaxed element, plus the Medicare levy.
Given the complexity of both superannuation and tax laws, independent financial and legal advice is highly recommended. Scammell & Co can assist you with your estate planning requirements including death benefit nominations.
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