Self-managed superannuation fund administrators, planners and
accountants should be aware that the rules to calculate the
components of a superannuation death benefit where a person
receiving a non-reversionary pension dies have been amended by the
Income Tax Assessment Amendment (Superannuation Measures No 1)
Regulation 2013. The new rules are effective from 3 June
When the new rules must be used
The new rules ('method statement') apply to work out the
tax-free and taxable components where:
the deceased member was receiving a non-reversionary pension
no amounts other than investment earnings or an anti-detriment
increase (compensation for tax paid on contributions) have been
added to the superannuation interest on or after the deceased
member's death; and
a death benefit is paid as a lump sum from that superannuation
a new pension (income stream) is commenced using the amount
from that superannuation interest.
Calculating the tax-free and taxable components using the
The effect of the method statement calculation is that the
anti-detriment increase or insurance proceeds count toward the
taxable component of the death benefit (and could form an untaxed
element), whereas before the regulation the components could have
reflected the existing taxable and tax-free components of the
interest. This means the tax payable in relation to the insurance
or anti-detriment increase could be significantly higher than
before the amendment.
Where there is life insurance through superannuation and the
member is drawing a pension, it may be more tax effective for the
pension to be reversionary (where this is possible), as insurance
added to a reversionary pension after the death of the member will
generally take on the existing components of the pension.
Example (from the explanatory statement)
A member is receiving a pension immediately before his death.
The pension is non-reversionary and the trustee pays the death
benefit as a lump sum. The below table summarises the impact of the
new rules on the tax components pre and post death.
Pre death superannuation interest and
Post death benefit and components (no amounts
Post death benefit and components (with anti-detriment
increase of $10,000)
Superannuation interest- $100,000
Tax-free component - $20,000 (20%)
Taxable component - $80,000 (80%)
Death benefit - $75,000
Tax-free component - $15,000 (20%)
Taxable component - $60,000 (80%)
Death benefit - $85,000
Tax-free component - $15,000 (20%)
Taxable component - $70,000 (80%)
Advisers should consider these issues when providing strategic
advice to clients.
If you would like any assistance in relation to these issues
please contact a member of our superannuation team.
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The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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