SMSF Death Benefit Relief

Although tax on death benefits was abolished decades ago, there still exists indirect taxes on the assets of members of superannuation funds on their death.  Until now, in the absence of an eligible reversionary pension beneficiary, pensions ceased on the death of a member.  The sale of fund assets to pay out the required lump sum benefit then occurred in the accumulation stage resulting in capital gains tax based on the original purchase price of the asset.  This has resulted in some funds incurring a substantial tax liability which effectives lump sum beneficiaries.   Effectively, from 1 July 2012, this unfair anomaly has been rectified.


In the Governments mid year budget and fiscal outlook papers released on 22 October 2012 the announcement states


“The Government will amend the law to allow the tax exemption for earnings on assets supporting superannuation pensions to continue following the death of a fund member in the pension phase until the deceased member’s benefits have been paid out of the fund.  This change will have effect from 1 July 2012.  This measure is estimated to have a small but unquantifiable cost to revenue over the forward estimates period.


The Superannuation law requires the benefits of a deceased member to be paid out of the fund as soon as practicable following the member’s death.  The continuation of the earnings tax exemption beyond the death of a member will be subject to this existing requirement.


This change will benefit the beneficiaries of deceased estates by allowing superannuation fund trustees to dispose of pension assets on a tax-free basis to fund the payment of death benefits.”


The announcement can have significant benefits to lump sum beneficiaries.  If you would like to discuss this matter in further detail please feel free to contact Bruce Robinson on 9836 3044.