You don't need to pay tax on the tax-free component of the death benefit, regardless of how you receive it, your age and the age of the deceased when they died.
Whether the money in your super account is tax-free or taxable when you withdraw it generally depends on the type of contributions made and whether tax was paid on it. Non-concessional (after-tax) contributions – those made from income after you paid tax on it – are tax-free when withdrawn from your super account.
When you die your child of any age may receive a lump sum payment directly from your superannuation fund. But, your adult child only receives the taxable component tax-free if they are either: your 'financial dependant', or.
Generally, a superannuation death benefit is a payment you make to a dependent beneficiary or to the trustee of a deceased estate after the member has died. You should make this payment as soon as possible after the member's death.
Super is a great way to save money for your retirement. It is generally taxed at a lower rate than your regular income. You typically pay 15% tax on your super contributions, and your withdrawals are tax-free if you're 60 or older.
Generally, an amount included in your income is taxable unless it is specifically exempted by law. Income that is taxable must be reported on your return and is subject to tax. Income that is nontaxable may have to be shown on your tax return but is not taxable.
If you have received a lump sum or income stream from a taxed fund after age 60 you do not need to include anything on your tax return unless it is a capped defined benefit income stream, or it is a death benefit and you are not a tax dependant of the deceased.
Usually, superannuation death benefits can be paid to a dependant of the deceased member or their legal personal representative (the executor or administrator of the estate of the deceased member). These terms are usually defined in the trust deed.
That's because your super is legally considered to be held in trust until you are eligible to access it.
As long as you have an up-to-date will, you can make a binding non-lapsing death benefit nomination to your legal representative. Then your super benefit will be paid to your estate and paid out according to your will, as long as it is valid at the time the death benefit is assessed.
Make sure you have a beneficiary that qualifies as a dependant for income tax purposes at the time of death. Ensure 100% of your benefits form part of the tax-free component. Have nothing inside superannuation at the time of death.
Inheriting money and assets
There are no inheritance or estate taxes in Australia. However, you may have tax obligations for the assets you inherit: capital gains tax may apply if you dispose of an asset inherited from a deceased estate.
You may withdraw a lump sum from super at retirement of any amount up to your total balance. A lump sum payment can be useful if you need to repay debts, or you have some large expenses such as making home renovations or purchasing a vehicle.
If you're 60 and over, the income will generally be tax-free. If you're between your preservation age and 59, the components of your super will dictate how it will be taxed.
Generally, superannuation does not form part of your estate unless the trustee of the superannuation fund pays your member 'death benefits' (the balance of your superannuation account) directly to your estate.
Money into superannuation
If they meet the required age and work test criteria, superannuation is a tax effective way to give money to your parents. It can be used to provide a tax-free income stream in an 'account-based' pension.
It's best to check with your super fund for specific rules. If you don't nominate a beneficiary, your fund will most likely give the money to your dependants. If you have no dependants, it's paid to your estate.
Contribution splitting allows you, at any age, to split up to 85% of the concessional contributions made into your super account over to your spouse's superannuation account. A concessional contribution includes employer SG contributions, salary sacrifice contributions and personal concessional contributions.
When a person dies, in most cases their super is paid to their dependants. Otherwise, their super can be paid to their estate. When a person's super is paid after their death it's called a 'death benefit'.
Once you reach age 65, you can access your Super Benefit at any time whether you have retired or not. There are absolutely no restrictions to accessing your Super Benefit when over 65. Your Super Benefit can be accessed as either a Pension or Lump Sum withdrawal.
Your preservation age is the age you can access your super if you are retired (or start a transition to retirement income stream). If you were born before 1 July 1960 you have already reached your preservation age of 55 years. You can access your super once you have met a condition of release.