Download SOA Insert - PaymentOfDeathBenefits.doc

Taxed Funds:


Paid as a Lump Sum
Tax-free if paid to a tax dependant.

If paid to a non-tax dependant, the
taxable component of the lump sum
is assessable income and taxed at
maximum 15% (plus Medicare levy).
Paid as a Super Income Stream
Deceased age 60 and above /
recipient (tax dependant) of any age
– tax-free

Deceased below age 60 / recipient
(tax dependant) above age 60 – taxfree

Deceased below age 60 / recipient
(tax dependant) below age 60 –
taxable component is assessable
income subject to marginal tax rates
(plus Medicare levy). The person is
entitled to a 15% tax offset. When
the recipient turns age 60 the income
stream becomes tax-free.
Notes:

If paid to a non-tax dependant, via the
trustee of a deceased estate, the
taxable component is not assessable
income for the beneficiary, as the tax is
paid within the estate.

The above is regardless of the age of
the deceased or of the recipient.
Notes:


Where tax-free the lump sum received

is not assessable and not exempt
income.
In addition, the tax-free component of
a lump sum is always not assessable
and not exempt income.
A person who is a non-tax dependant
cannot receive a Super Income
Stream.

Where a child of the deceased under
age 25 receives a death benefit Super
Income Stream, he or she will be
required to commute this benefit upon
turning age 25. Income streams that
had commenced prior to 1 July 2007
will be taxed as if received by a
dependant.

Where tax-free the income is not
assessable and not exempt income.

In addition, the tax-free component of a
Super Income Stream is always not
assessable and not exempt income.
Untaxed Funds (applies to certain government funds):


Paid as a Lump Sum
If paid to a tax dependant, the full
lump sum is tax-free.

If paid to a non-tax dependant, the
taxable component of the lump sum
is taxed at 30%.
Notes:

If paid via the trustee of a deceased
estate, the taxable component is not
assessable income for the beneficiary,
as the tax is paid within the estate.

The above is regardless of the age of
the deceased or of the recipient.

Where tax-free the lump sum received
is not assessable and not exempt
income.

In addition, the tax-free component of
a lump sum is always not assessable
and not exempt income.
Paid as a Super Income Stream
Deceased age 60 and above /
recipient (tax dependant) of any age
– taxable component is assessable
income subject to marginal tax rates
and the person is entitled to a 10%
tax offset.

Deceased below age 60 / recipient
(tax dependant) above age 60 –
taxable component is assessable
income subject to marginal tax rates
and the person is entitled to a 10%
tax offset.

Deceased below age 60 / recipient
(tax dependant) below age 60 –
taxable component is assessable
income subject to marginal tax rates.
When the recipient turns age 60 the
person will be entitled to a 10% tax
offset.
Notes:

A person who is a non-tax dependant
cannot receive a Super Income
Stream.

Where a child of the deceased under
age 25 receives a death benefit Super
Income Stream, he or she will be
required to commute this benefit upon
turning age 25 (unless an invalid child).
Income streams that had commenced
prior to 1 July 2007 will be taxed as if
received by a dependant.

The tax-free component of a Super
Income Stream is always not
assessable and not exempt income.
The following is a comparison of the definition of “Dependants” under super compared to
under Tax law:
Superannuation
(SIS legislation)
current surviving spouse or de facto
spouse
a child of any age (including step,
adopted or ex-nuptial)
any person who was in an
interdependency relationship with the
deceased at the time of death (generally
means being financially dependent) #
Tax
(Income Tax Assessment Act 1936)
a surviving spouse or de facto spouse
an ex-spouse
a child under 18 of the deceased
any person who is financially dependent
on the deceased at the time of death, or
at the time of the payment of the death
benefit ETP, or
any person who was in an
interdependency relationship with the
deceased at the time of death #.
# Interdependency relationship under both SIS & Tax legislation1 may exist if two people:
Have a close personal relationship; and
Live together; and
One or each provides the other with financial support; and
One or each provides the other with domestic support and personal care.
Note: An ‘interdependency relationship’ may still exist where the parties are temporarily living
apart, or either, or both of them suffer from a disability.
As can be seen from the above, under SIS legislation (i.e. super) the definition of a dependant
includes children of any age. However, a son or daughter over 18 and not financially
dependent on the parent is considered a non-dependant under the Income Tax Assessment
Act 1936. Therefore, the taxable component of a superannuation death benefit received by a
non-tax dependant under the Income Tax Assessment Act would be taxed at 15% (plus
Medicare levy), whereas it is tax-free for the tax dependent (i.e. a spouse, a dependent child,
and in certain other circumstances where inter-dependency exists).
Note: For couples separated by illness or disability the definition of ‘interdependency
relationship’ will be met if the beneficiary can show that they were providing ongoing
emotional support to the person with the disability.
Same sex couples may fall under the definition of ‘interdependency relationship’.
Relationships such as ‘Flatmates’, ‘Professional carers’, ‘Neighbours’ and ‘Charity workers’ do
not meet the definition of ‘interdependency relationship’.
1
There may be small differences between the interdependency requirements between SIS and Tax legislation. Identification
of the differences, if any, goes beyond this advice.
The components that make up the tax free and taxable components of superannuation (and
Super Income Streams) as from 1 July 2007 are as follows:
Current Component
Pre 1 July 1983 component
Concessional
From 1/7/2007
Undeducted contributions
Tax free component
Post-June 1994 invalidity
Capital gains tax-free
Non-qualifying
Post 30 June 1983 component
Taxable component
Note: All growth within superannuation accumulation is added to the taxable component.
The tax-free component (if any) and taxable component are the relevant proportions of each
reflecting the proportions such components make up of the total value of the income stream
at the time a death benefit payment is made.
In the Super Income Stream environment the proportionality of tax-free component to taxable
component remains constant from the time of commencement2.
2
If the super income stream is commenced prior to 1 July 2007, the proportionality is as at 30 June 2007 if age 60 or over, if
under age 60 then it is on attaining age 60.