The Government has announced that it will legislate effective from 1 July 2012 to ensure that investment earnings on assets supporting pensions will continue to be exempt from tax until a deceased member's superannuation death benefits are paid to their dependants.

The proposed amendments will mean that:

  • assets supporting a current pension liability will not trigger a tax liability if transferred or disposed of on the member's death; and
  • the taxable and tax free components of a deceased member's superannuation interests, where amounts are held in accumulation phase and pension phase, will not need to be recalculated on death. This is important where a pension is comprised of predominately tax free amounts.

The announcement follows the release of Draft Taxation Ruling TR 2011/D3, which stated that in the Commissioner of Taxation's view a non reversionary pension ceases immediately on the member's death. Once implemented, this legislative fix will end the uncertainty around the taxation of assets supporting a non reversionary pension on the member's death. For our assessment of TR 2011/D3, please refer to our update on 10 August 2011.

While the announcement addresses the tax treatment of pension assets on death, members should continue to consider their succession planning more broadly. For example, steps should be taken to ensure control of the fund on the member's death passes to the right person, and that their superannuation death benefits will be paid in accordance with their wishes by putting in place strategies such as reversionary pensions or binding death benefit nominations.

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.