Australia abolished death duties in the late 1970s and early 1980s. Your home, savings and shares pass to your family without an inheritance tax.
Your Super is different. When Super is paid to an adult child, the taxable part of your balance is taxed at up to 17% (15% plus the 2% Medicare levy). Any untaxed element is taxed at up to 32%.
Who pays the tax?
| Who receives your Super | Tax on a lump sum |
|---|---|
| Your spouse or de facto partner | Nil |
| A child under 18 | Nil |
| Someone financially dependent on you | Nil |
| An adult child who is financially independent | Up to 17% |
Most people leave their Super to their adult children. That is exactly where the tax applies. Most balances are almost entirely taxable component, including employer contributions, salary sacrifice and investment earnings.
Example
Margaret is 78 and widowed. She has $500,000 in Super, of which $450,000 is the taxable component. If her two adult children receive her Super, around $76,500 goes in tax. They receive about $423,500 between them.
Can the tax be reduced?
Often, yes, with planning done while you are alive.
- Recontribution strategy. Withdrawing Super tax-free after 60 and contributing it back as an after-tax contribution, converting taxable component into tax-free component.
- Planned withdrawals. Drawing down Super during your lifetime so less of it is caught at death.
- Reviewing your beneficiary nomination. Deciding whether Super goes directly to beneficiaries or through your estate, and keeping your nomination binding and current.
Each strategy depends on your age, contribution caps, total Super balance and how the money affects your Age Pension. Getting the timing wrong can cost more than it saves.
Where people get caught out
- Expired nominations. Many binding nominations lapse after three years unless renewed.
- Leaving it too late. A withdrawal strategy is hard to carry out when someone is unwell or has lost capacity.
- Assuming the will covers Super. Your fund decides who receives it unless you have a valid binding nomination.
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