We’ve previously discussed the death tax on superannuation. To put it simply, when someone passes away, the taxable component of their superannuation faces a 15% tax, plus the 2% Medicare levy, if it is left to a non-dependent for superannuation purposes, such as an adult child. That means $85,000 tax payable on a $500,000 balance if the entire balance is taxable, which is probable.



Time can be crucial here. I recently got an email from a woman whose parents died last year. Her father passed away first; he had a binding nomination for his wife to receive the balance, which would have avoided the death tax, as a spouse is a dependent for superannuation purposes. However, the super rules forbid a fund from paying benefits to someone who is deceased, so because she passed away just three days later, the super fund refused to pay the money to her estate.



It’s unusual for spouses to die just three days apart, but super funds can take months to process death benefit payments. If the surviving spouse passes away before the benefit is paid, the estate will be left to pay the death tax.

So, how do you avoid this tax? The simple solution is to ensure your attorney withdraws your super tax-free before you die. Let’s be realistic – most people don’t pass away suddenly, and there are often signs that death may be approaching. But it’s not easy – people who hope or believe they have many years left can be reluctant to withdraw their super.

This begs the question: when should you exit/withdraw your super?



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