The Tax Institute
National Superannuation Conference
Increasingly, individuals hold a substantial amount of their wealth within the superannuation system. Productivity Commission research paper, Wealth transfers and their economic effects, December 2021 provides as follows:
The ABS Australian System of National Accounts estimate of superannuation was $2.8 trillion in 2018;
Using the ALife dataset, the total value of death benefits each year ($6.9 billion in 2016) was calculated; and
The value of death benefits that are transferred between generations ($2.2 billion in 2016) was added to the estimate for the value of wealth transferred between generations based on probate files.
Superannuation tax planning typically requires a long-term approach. Members of superannuation funds may need to adopt appropriate strategies, or a combination of strategies at different stages of their superannuation journey, including:
at the contribution and accumulation stage (e.g. by way of strategic contributions such as withdrawal and recontribution strategy and asset investment to maximise fund assets and earnings);
at the payment stage (e.g. by taking out benefits before death or taking a transition to retirement pension); and
in the event of death (e.g. by ensuring the fund have enough liquid assets to make death benefit payments and
One of the critical considerations in relation to superannuation is the tax treatment of benefits upon the death of the member. While a person is alive and aged 60 and over, the underlying components of any superannuation benefits (i.e. tax-free and taxable components) do not matter as all benefits are generally received tax-free during a person's lifetime.
However, the respective components of a superannuation benefit may become relevant again upon death in terms of the tax treatment of any superannuation remaining in the fund where there is no surviving spouse or “death benefit dependant”. In particular, the taxable component of superannuation benefit left over upon the death of the member are taxed between 15 to 32% (plus Medicare levy of 2%) when paid in a lump sum to a beneficiary (e.g. an adult child) who is not a “death benefits dependant”.
Therefore, it is important to consider a strategy to reduce the potential tax payable by adult children through careful planning. Even though estate planning involves a complex interaction of laws governing superannuation, trusts, probate and tax, with careful planning, they also offer opportunities for flexible and tax-effective outcomes in order to ensure the smooth transition of superannuation assets between generations.
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