Noel Whittaker's Blog Recently I’ve received a number of emails asking about the death tax of 17 per cent on the taxable portion of a superannuation payout that is left to a non-dependant. In this context, a spouse is always a dependant, whether they are working or not.
One way to lessen the death tax is to reduce the taxable portion of your super. This is usually done by withdrawing funds once you reach 60 when withdrawals become tax free, and then re-contributing them as non-concessional contributions. Advice should be taken as there are heavy penalties for exceeding the caps, and it is not possible to do this once you reach 65 unless you can pass the work test.
Recently I recommended to a reader that they simply withdrew their superannuation tax free prior to death as this would avoid any death tax that would be payable on it.
A reader asked what would be the position if the fund contained property. I responded that the enquiries I have made indicate that if a notice to the trustee is given prior to the death of the member and the redemption of the asset is made within a reasonable time of the death of that member there should not be problem. A case in point may be when a self-managed fund invests in managed funds which may have a 30 day redemption period. However, it’s a bit more complex than the asset consists of real estate which could take months or even years to sell.
I think a better option is to anticipate the problem in advance and take all steps necessary to ensure that a non-liquid asset is not held in the fund at the time of a member’s death. I appreciate that death can happen suddenly, but that is a rare occurrence – in most cases there is a degree of warning.
Also, keep in mind that the sole purpose of having money in superannuation when you are retired is to enjoy the concessionally taxed status of the fund. If the member had a reasonable belief that their life expectancy was no more than three to five years, they would have little to lose by transferring the money back to their own name sooner rather than later. Remember, the tax-free threshold is $18,200 and most portfolios do not generate this kind of income.