How death benefits are taxed

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MoneySmart
(ASIC)

When a person dies, their super balance is usually paid to their nominated beneficiary. This is called a ‘super death benefit’. Superannuation benefits are typically made up of two components: tax-free and taxable (which may come from a taxed or untaxed source).

The tax-free component includes:

  • After-tax contributions
  • Government co-contributions.

The taxable (taxed) component consists of:

  • Employer contributions
  • Salary sacrificed contributions
  • Personal contributions where a tax deduction was claimed.

The taxable (untaxed) component only applies to super from an untaxed source, such as a public sector defined benefit super fund for government employees.

Super death benefits tax

The amount of tax a beneficiary pays is determined by:

  • The super component
  • Whether they are a dependant for tax purposes
  • Whether the super is taken as a lump sum or an income stream (non-dependants can only receive a super death benefit as a lump sum).

Tax treatment for each super component of a death benefit

Benefit recipient Tax-free component Taxable (taxed) component Taxable (untaxed) component
Dependant (received as a lump sum) No tax payable No tax payable No tax payable
Dependant (received as an income stream) No tax payable
  • If deceased or beneficiary is 60 years or over: no tax payable
  • If both beneficiary and deceased are under 60 years old: marginal tax rate less 15% offset
  • If deceased or beneficiary is 60 years or over: marginal tax rate less 15% offset
  • If both beneficiary and deceased are under 60 years old: marginal tax rate
Non-dependant (received as a lump sum) No tax payable Lower of marginal tax rate (including Medicare) or 17% Lower of marginal tax rate (including Medicare) or 32%
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Categories: Tax