Latest News

Hot Issues
spacer
State and Federal COVID-19 support --- January - 2022
spacer
Beware section 99B
spacer
ATO provides further clarity on DIN process
spacer
Unpaid client invoices placing greater pressure on SMEs
spacer
10 top global corporations since 1998
spacer
Increase in the number of SMSF members
spacer
Single Touch Payroll (STP) – Phase 2
spacer
ATO reiterates tax system incentives
spacer
Our 2021 Advent Calendar.
spacer
ATO flags focus areas for combating $33.5bn ‘tax gap’
spacer
Business Resources - Grants, Assistance, Resources and more.
spacer
Employee Christmas Parties and Gifts – Any FBT?
spacer
FBT – Christmas Parties and Taxi Fares
spacer
How the best firms are supporting the mental health of their employees
spacer
Asian Economies (1960 - 2020)
spacer
Making the festive season less taxing
spacer
Why more Millennials are turning to SMSFs
spacer
Company directors must register - all you need to know
spacer
Hardship priority processing of tax refunds
spacer
Business valuations: Tips, tricks and traps
spacer
Government moves to scrap SG $450 threshold
spacer
World's most productive countries
spacer
Superannuation changes - Superannuation guarantee (SG)
spacer
Unused Super Contributions
spacer
Main residence exemption myths and misconceptions
Article archive
spacer
Quarter 4 October - December 2021
spacer
Quarter 3 July - September 2021
spacer
Quarter 2 April - June 2021
spacer
Quarter 1 January - March 2021
spacer
Quarter 4 October - December 2020
spacer
Quarter 3 July - September 2020
spacer
Quarter 2 April - June 2020
spacer
Quarter 1 January - March 2020
spacer
Quarter 4 October - December 2019
spacer
Quarter 3 July - September 2019
spacer
Quarter 2 April - June 2019
spacer
Quarter 1 January - March 2019
spacer
Quarter 4 October - December 2018
spacer
Quarter 3 July - September 2018
spacer
Quarter 2 April - June 2018
spacer
Quarter 1 January - March 2018
spacer
Quarter 4 October - December 2017
spacer
Quarter 3 July - September 2017
spacer
Quarter 2 April - June 2017
spacer
Quarter 1 January - March 2017
spacer
Quarter 4 October - December 2016
spacer
Quarter 3 July - September 2016
spacer
Quarter 2 April - June 2016
spacer
Quarter 1 January - March 2016
spacer
Quarter 4 October - December 2015
spacer
Quarter 3 July - September 2015
spacer
Quarter 2 April - June 2015
spacer
Quarter 1 January - March 2015
spacer
Quarter 4 October - December 2014
Quarter 4 of, 2020 archive
spacer
2020 is coming to an end. Phew!!
spacer
Victorian State Budget Overview 2020 - 2021
spacer
Employee Christmas Parties and Gifts – Any FBT?
spacer
FBT – Christmas Parties and Taxi Fares
spacer
JobMaker hiring credit given green light despite ongoing concerns
spacer
Super, death, and taxes
spacer
ATO extends JobKeeper deadlines ahead of Christmas
spacer
Small-business coronavirus grants set to be income tax-free under new bill
spacer
How Australians are taking advantage of income tax cuts
spacer
Part 1 – Budget reminders. Under the Hood.
spacer
Part 2 – Budget reminders. Under the Hood.
spacer
Part 3 – Budget reminders. Under the Hood.
spacer
Comprehensive list of COVID-19 initiatives and packages.
spacer
Businesses not meeting obligations warned as ATO restarts compliance programs
spacer
Employers cautioned over ‘hard and fast’ decline in turnover eligibility
spacer
‘Follow the spirt of the law’, warns ATO
spacer
$120m in JobKeeper clawed back by ATO, new compliance areas highlighted
spacer
Budget 2020 - A very comprehensive break down.
spacer
Budget 2020 - Fact Sheets
spacer
Budget 2020 - At a Glance, Overview, Outlook
spacer
Temporary home office expenses shortcut extended again
spacer
JobKeeper extension – changes implemented
spacer
JobKeeper Participants – are “workers”
spacer
Commissioner registers updated JobKeeper alternative tests
spacer
Varying Pay As You Go (PAYG) Instalments
spacer
Reminder of Medicare Levy Surcharge (MLS)
Super, death, and taxes

 

An interesting finding in the federal government's Retirement Income Review report is that many Australians are dying with the majority of the wealth they had when they retired.

 

       

Having enough superannuation to enjoy a financially comfortable lifestyle in retirement is the aspiration of most Australians.

As the super system continues to mature, and with the benefit of compounding investment returns, average retirement savings balances are rising.

But an interesting finding in the federal government's just-released Retirement Income Review final report is that many Australians are dying with the majority of the wealth they had when they retired.

Concerned about outliving their superannuation savings, the report found that the majority of retirees tend to spend less rather than use financial products to better manage their longevity risk.

In other words, rather than wanting to spend up, many retirees are keen to watch their savings balance grow.

And that's pointing towards a huge blow-out in the payment of super death benefits, which actuarial firm Rice Warner projects in the Retirement Income Review report will rise from the current level of around $17 billion per annum to just under $130 billion by 2059.

Projected value of superannuation death benefits


Unintended consequences

When there's superannuation still left over at the end of your life, it's most commonly inherited by your surviving spouse or children, or bequeathed to other nominated beneficiaries.

If you don't have a spouse, and intend to leave your super to your adult children, there may be serious tax consequences for them.

It all comes down to whether your beneficiaries are entitled to access your super funds tax free or not after you're deceased.

So, having an understanding of the tax rules around super death benefits is extremely useful. With proper estate planning before you die, it may be possible to reduce your after-death super tax liabilities.

The tax rules around super death benefits

While there is no formal inheritance tax in Australia, super death benefits are taxed in some cases.

Essentially, superannuation can only be passed on tax-free when it is left to a spouse or dependant children under the age of 18.

A death benefit dependant, as determined by the Tax Act, can also include de factos, former spouses, those with whom you have shared an interdependency relationship immediately prior to death, and others who were financially dependent on you just before you died.

Beneficiaries who fall outside of these parameters, such as adult children, are often caught up in the ATO's tax dragnet.

Superannuation benefits are generally comprised of both taxable and tax-free funds, based on the nature of contributions that have been made over time.

Those contributions made by your employer at the concessional tax rate of 15 per cent form part of the taxable component, while after-tax contributions made by you separately as non-concessional contributions make up the tax-free component.

It's the taxable component – usually where the bulk of an individual's super funds reside – that will carry the tax liability for any adult children receiving your super payout on your death.

Avoiding an after-death tax experience

Transferring super wealth is a non-issue from a tax perspective if you have a spouse or dependant children to leave it to.

If you don't, there are ways to reduce your potential super tax burden for non-dependent beneficiaries.

One of them is through the use of what's known as a super recontribution strategy.

If you've reached an age where you can legally access your funds, this enables you to draw out the taxable component of your super as a lump sum and then recontribute it back into your super fund in the form of after-tax contributions.

Any taxable super withdrawn will be liable for tax at your marginal tax rate, however if you are aged over 60 and have stopped working (are retired) then your marginal tax rate is effectively zero.

Current laws allow individuals to contribute up to $100,000 per financial year as non-concessional (tax-paid) contributions, or up to $300,000 in one year using what's known as the three-year bring forward rule.

Keep in mind however that there are restrictions on personal super contributions for those aged 67 and above.

Using a recontribution strategy can effectively reduce or eliminate the taxable portion of your super, meaning non-dependant beneficiaries of your super may not have to pay any tax if it's received as a lump sum after your death.

Careful planning

When you're looking at who you want to leave your super to, it's very important you consider things carefully as some proper planning needs to be done.

Without planning there could be some unexpected and significant taxes bestowed upon your heirs, which could be exacerbated if any life insurance payout from your super fund is made to someone who is not a spouse or dependant.

To discuss your estate planning needs, including around your super death benefits and potential tax liabilities, it's important to consult a licensed financial adviser.

 

 

By Tony Kaye
Senior Personal Finance Writer
Vanguard Australia
01 Dec, 2020

 

© O'Brien and Partners 2011 - All Rights Reserved | 91 Station Street, Malvern VIC 3144 | Tel: 03 9509 3911 | Fax: 03 9509 3922