There’s been a lot of talk in the media lately about a so-called super “death tax”. Here is a brief overview but some circumstances are much more complex.
When we think about superannuation, most of us see it as retirement income. But what happens to your super if you pass away?
Super doesn’t automatically form part of your estate. Instead, it is generally paid as a death benefit and unfortunately, it’s not always tax-free.
What many people don’t realise is that super is made up of two parts: a taxable component and a tax-free component. Most people have a significant taxable portion, especially if their super was built from employer contributions and salary sacrifice.
If your super is paid to a tax dependant (like a spouse or dependent child), it’s usually tax-free. But if it goes to a non-dependant, such as adult children, not only is it taxable, but the tax rate can be between 15 per cent and 30 per cent, plus Medicare.
Here is a very simple example: if your super balance is $500,000 and $400,000 of that is taxable, your adult children could pay up to 17 per cent tax (15 per cent plus Medicare) on the taxable component. That is $68,000 lost to tax.
Advisers can sometimes implement strategies to reduce the tax, but it is not always straightforward. That’s why having a conversation with your adviser is important.
Mandy Newman, Director, AJN Financial, 15/13 Poinciana Avenue, Tewantin, 5430 6631, ajnfinancial.com.au
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