In 1979, Australia abolished the death duty. Since then, we haven’t had any direct tax incurred on any inheritance, but there are some indirect ones that you should be aware of. If you are receiving the assets, or have nominated someone to receive yours upon death, here is what you need to know about the superannuation death benefit.
What is it?
All Australian citizens have a small percentage of their income automatically put into a superannuation fund by their employers. This is to prepare everyone for retirement.
If you pass away before spending all of this superannuation, a nominated beneficiary will receive the remainder of the funds. You will nominate this person, (or persons) to your super fund if their rules allow for it. If you are the nominated beneficiary by the deceased, then you will receive these funds. The funds received is called a superannuation death benefit.
The trustee of the superannuation fund will determine if the beneficiary will receive the money as a lump sum or an income stream. It works almost like life insurance.
Things to consider
Here are some factors to determine.
- If you are a dependent of the deceased person or not.
- If the money is paid in a lump sum or income stream.
- Whether or not the super fund has already paid tax on taxable components.
- Your age, as well as the deceased persons age.
These are the same factors that the ATO and super fund use to determine how you are paid and how you get taxed. Not all situations call for a tax, and so not all people will be taxed the same.
If you are a dependent:
Your super can have taxable and tax-free components, so you will need to familiarise yourself with tax law according to your situation. As a dependent of the deceased you are not subject to any tax if the money is received as a lump sum. Therefore, you also don’t need to include it anywhere on your income tax statements.
If you are a dependent and receive the money as an income stream however, tax will apply. The table on the ATO website will help you figure out which rate applies to you.
If you are not a dependent:
If you’re not a dependent, and receive the money as a lump sum it will be subject to your marginal tax rate. However, this tax rate can be reduced by tax offsets, much like your regular income tax.
As of the 1st July 2007, non-dependents cannot be paid the super death benefit as an income stream. If you have received an income stream before this date, it is treated the same as a dependent.
Whether you are an Australian resident or not, everyone is subject to the same withholding rates. If you are are from a country with a double tax agreement with Australia, you may be able to avoid the Australian tax altogether.
Conclusion
All types of tax are incredibly complex and have many different types of exemptions and opportunities to reduce the rate. The same applies to the superannuation death benefit. It is essential that you discuss your situation with an experienced tax lawyer. They are able analyse your circumstances and advice what sorts of tax rates you may be facing, if any.
