There are currently NO ‘death duties’ in Australia, all Australian states having abolished them back in 1979.
However, there are taxes that may be payable as a consequence of death. In other words ‘if it walks like a duck, and sounds like a duck…it’s a duck, isn’t it’?
There are several of these but the one I want to focus on today is the potential tax that’s embedded in your superannuation benefits. It’s embedded in a way that you might not even see unless you know what you’re looking for.
To see ‘this duck’ you need to first understand that your super benefits are categorised as either ‘taxable benefits’ or ‘tax-free benefits.’
The first is ‘taxable benefits.’ These include benefits arising from salary sacrifice contributions, personally deductible contributions or employer contributions (i.e. the 9.5% super guarantee). Essentially, any benefits arising from contributions on which someone’s received a concession (read ‘tax deduction’). Whether there’s any tax actually due on these benefits depends on who receives them. If at the death of the super account holder the taxable benefit is paid to a spouse or dependent child, for example, no tax is payable. The logic being that the benefit is actually helping someone who was directly dependent on the deceased; this being one of the purposes of superannuation. If on the other hand, the taxable benefit is paid to an adult child who is not financially dependent on the deceased, tax of up to 16.5 % (or more) may be applied. The logic being that superannuation was never designed to benefit individuals who were not financially dependent on the decease and, as such, the Government wants to ‘claw back’ some of the concessions (read ‘tax deduction’) that were received by the deceased.
Keep in mind that for someone who is already accessing their super via a pension (e.g. someone over the age of 65), the distinction between ‘taxable’ and ‘tax-free’ benefits is irrelevant. Any and all amounts paid to them, while they are alive, are tax-free in their hands.
However, it’s when this person dies that the ‘taxable’ benefits could turn into a ‘death duty’ (as noted above, depending on who receives it.)
For example, earlier this year I met a lovely gentleman in his early 70’s who was on his death bed. He had no partner and only one adult son who was not financially dependent on him. He possibly only had a few days, perhaps weeks to live and wanted to know if there was anything he should do while he was still alive to reduce tax payable by his son (his sole heir). As it happens, he had about $200,000 in his super account balance consisting entirely of taxable benefits.
My advice to him was to immediately contact his super fund and arrange for the full redemption of his super paid into his personal bank account. As noted above, any and all payments received from super in respect of a person over age 65 are tax-free ‘in their hands’, in other words, while they are alive. This simple action saved his son about $33,000 in ‘death duties.’
Keep in mind that this can be a tricky area, and there’s a bit more to what I’ve described above, so it’s important to seek out the right advice.
Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.