Taxation of Superannuation after a Fund Member’s Death
Estate Planning Update – Autumn 2013
The federal Government has decided to address (unfortunately only) one of the many practitioner and community concerns raised following the release of an ATO draft ruling in mid 2011. While death benefit taxes remain a reality for most adult children receiving superannuation death benefits from their parent’s member entitlements, the situation in terms of taxation of an SMSF or other superannuation fund immediately after the death of a fund member has been addressed.
If a fund member dies while in benefits phase, having already started to receive a pension or annuity, the federal Government has announced that the fund member’s account is to remain free of tax during the period between the fund member’s death and the payment of a lump sum or the commencement of a death benefits pension, e.g. to a:
- surviving domestic partner
- child with a significant disability.
In addition to relief from income tax during this period, any sales of assets during this period are free of CGT. (Unfortunately, the distribution of an asset from an SMSF or other superannuation fund to a fund member’s dependant or into the deceased estate of the fund member still triggers CGT.)
In addition to relief from income tax during this period, any sale of assets as well as in specie transfers of assets to a fund member’s dependant or deceased estate are free of CGT provided the payment or transfer occurs as soon as practicable after the death of the member. As a result of only a limited improvement to the taxation of superannuation post death, there is still a need to plan for the incidence of death benefit taxes and CGT, e.g. when:
- funding superannuation
- deciding whether to take a lump sum death benefit shortly before death
preparing death benefit nominations, enduring powers of attorney and Wills.