Ask an Adviser: Do estate taxes apply to superannuation?

Published on: November 7th, 2023

Estate planning can be complex, particularly when it comes to the tax implications. Our advisers are often asked whether estate taxes apply to superannuation, so we asked Compliance Manager Tammy Tan to weigh in.

Firstly, it’s important to note that superannuation benefits do not automatically form part of your estate. You need to have a valid death benefit nomination in place, or the trustee will exercise its discretion when it comes to the distribution.

Generally, a superannuation death benefit can only be paid to a Superannuation Industry Supervision (SIS) dependant. A SIS dependant can be your spouse, child or someone in an interdependent relationship with you.

If this definition doesn’t apply to your intended beneficiary, another option exists. Many funds will allow you to nominate a legal personal representative so that the benefits can be distributed according to your will.

Now, on to the estate tax implications.

The implications differ based on whether you choose a lump sum or income stream benefits. First, let’s look at lump sum benefits.

Lump sum superannuation death benefits are tax-free for tax-dependent beneficiaries. Spouses, children aged under 18, financial dependents and interdependent people fall under this definition. Adult children are the one SIS dependent that does not always fall under this category.

If your children are over 18 and financially independent, they are considered non-tax-dependent beneficiaries. And this is when taxes typically apply.

When the superannuation death benefits are paid to a non-tax dependant as lump sums, taxes apply as follows:

  • A maximum of 15% plus Medicare levy on the taxable component
  • A maximum of 30% plus Medicare levy on the taxable untaxed elements.

The tax implications of income stream benefits become a little more complex.

Firstly, income stream benefits can only be paid to some beneficiaries, including spouses and children aged under 18 (or under 25 and financially dependent).

Secondly, the tax implications will depend on the deceased’s age and the beneficiary’s age.

If either the deceased or the beneficiary is over 60:

  • There will be no tax on tax-free and taxable taxed elements of the income stream payments.
  • The taxable untaxed elements will be taxed at a marginal tax rate less a 10% non-refundable tax offset.

If both the deceased and the beneficiary are under 60:

  • The taxable taxed elements of the income stream payments will be taxed at a marginal tax rate less a 15% non-refundable tax offset.
  • The taxable untaxed elements will be taxed at the marginal tax rate with no tax offset.

Tax implications for superannuation death benefits can quickly become complex. It’s worth investing in expert advice to ensure you have the right structure for your age and your chosen beneficiary. If you need help navigating your estate plans, the experienced advisers at Apt Wealth Partners can help.


General Advice warning

The information provided in this blog does not constitute financial product advice or a recommendation to purchase a particular product. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners Pty Ltd is not a registered Tax Agent. You should consider your individual situation and seek tax advice from a registered tax agent before making any decision based on the content of this document. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.