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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.