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Intrinsically linked with tax, superannuation is a minefield of concerns for many of us. One such concern is whether super gets taxed after a death.
When a person’s super is paid after their death it’s called a ‘death benefit’. Death benefits can be paid to a dependant only after the owner of the super dies. A dependant is anyone who has been nominated as such by the deceased in a legal document.
Since super is designed to help fund retirement, the death benefit is made up of the deceased person’s super account balance, and if they had death insurance cover, any insured benefit.
The tax on a death benefit depends on whether:
- you were a dependant of the deceased
- it is paid as a lump sum or as a super income stream benefit (Essentially, a super income stream is a way of receiving regular income using the money you have built up in your super).
- the income stream is an account-based (receive a regular payment and continue to have super invested) or a capped defined benefit income stream (where the amount of tax-free income received from these income streams is limited).
- the super is taxable or tax-free, and whether the super fund has already paid tax on the taxable component
- your age and the age of the deceased person when they died.
If you are a dependent of the deceased, you do not have to pay tax if you receive it as a lump sum, but if receiving it as an income stream you may need to pay.