Estate Planning
Super Death Benefit Tax

Super Death Benefit Tax


The Little-Known Super Tax That Could Cost You Thousands… And What To Do To Avoid It

The superannuation system in Australia can be quite complex. To make things worse, politicians like to tinker with the system, which keeps us on our toes. The unfortunate thing about this is that for the average Australian it can become quite challenging to stay up to date with the rules, regulations, and taxes.

One tax that you need to be aware of though is death benefit tax.

What Is The Super Death Benefit Tax

When someone passes away, their super will be distributed to their beneficiaries. The payment made to the beneficiary is known as a super death benefit. In some cases, a super death benefit will be tax free, while under certain circumstances tax may be payable on the benefit.

If you’re familiar with super, you’ll know that there are taxed and untaxed elements within superannuation. The maximum death benefit tax payable is 15% (plus Medicare levy) for the taxed balanced (contributions made by employer or through salary sacrifice), while the worst-case scenario for the untaxed amount (contributions made to defined benefit funds) is the beneficiaries marginal tax rate (up to 45% + Medicare levy).

Let’s Work Through An Example

To demonstrate the effect of super death benefit tax, let’s take a look at an example, where someone passes away with $100,000 in super, which is all taxable component (contributions made by employer / salary sacrifice). If the death benefit is paid to a spouse or financial dependent, it should be tax free. However, if it’s paid to a non financial dependent (i.e. adult child), the payment to their beneficiary could be $17,000 less, due to tax.

If the same person passes away with $300,000 in super, then the tax increases to $51,000.

What Can You Do To Avoid Super Death Benefit Tax

The good news is that there are strategies that you can employ to reduce, and potentially eliminate, super death benefit tax. These strategies can be quite nuanced depending on your personal situation so it’s best to sit down with a financial planner to help identify which strategy is most appropriate for you.

If a financial planner is able to save your beneficiary most (if not all) of the super tax benefit above, wouldn’t it be worth the investment of getting professional financial advice? Where would you rather your money to go – to your loved ones? Or to the tax man?

When it comes to minimising super death benefit tax, Puddle 2 Pond Financial are experts at implementing strategies to avoid unnecessary tax. To find out how we can help you, get in contact with us today.

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This website contains general information only. It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.

Puddle 2 Pond Financial Pty Limited, ABN 14 159 325 603, is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited, Australian Financial Services Licensee and Australian Credit Licensee.

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