Adult children could find themselves facing an unexpected tax bill unless investors organise their superannuation death benefits allocation payout carefully, warned Navigator technical marketing manager, Martin Breckon.
Adult children could find themselves facing an unexpected tax bill unless investors organise their superannuation death benefits allocation payout carefully, warned Navigator technical marketing manager, Martin Breckon.
“We need greater clarity urgently from the government. They proposed that superannuation benefits paid to a ‘dependant’ would be tax-free regardless of their age, but they did not specify whether this referred to a dependant under tax or superannuation law.”
Under superannuation law, an eligible child over 18 is classified as a dependant, but under tax law they will be a non-dependant unless they can be categorised as financially dependent on the deceased.
“Any death benefits paid to the adult child could therefore be taxed at up to 15%,” Martin said.
“Although it has always been the case that superannuation death benefits were taxable when paid to a non-dependant, it was often avoided by paying the death benefit as an income stream.
“As part of its proposals, the government has stated that superannuation death benefits cannot revert to an income stream for a non-dependant. Again, further clarity is needed.” The moment a dependent turns 18 they could find themselves facing a 15% tax demand when they receive a death benefit,” he warned.“The Federal Government proposes that death benefits be paid to a financial dependent might be taxed, and the tax will depend on the recipient’s age.
"However there is an out for those aged over 60.
“Since superannuation benefits are tax free after 60, a person could withdraw their benefits tax-free and recontribute them as undeducted contributions.
“When paid as a death benefit, undeducted contributions would not be taxable regardless of who they are paid to,” Martin said. “Earnings, however, would form part of the taxable component.
“If you wish to keep your superannuation payouts in the family you should consider an investment fund such as Navigator which can turn taxed dependents into untaxed dependents.”
-ends-
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Notes to editors:
- Aviva Australia is a group of two specialist financial services companies: Navigator and Norwich Union Life Australia Ltd. Portfolio Partners is the Australian funds management arm of Aviva plc. Through these companies we provide products and services in the areas of wealth creation and wealth protection for more than 300,000 customers throughout Australia.
- Globally, Aviva Australia is part of Aviva plc, the world's sixth largest insurance group, the largest insurer in the UK and one of the top five life companies in Europe. Aviva was formed in May 2000 through the global merger of CGU plc and Norwich Union plc.
- Aviva is a leading provider of life and pensions products to Europe and has substantial businesses elsewhere around the world. Its main activities are long-term savings, fund management and general insurance. It has premium income and investment sales from continuing operations of A$77.6 billion, and more than A$683.9 billion of assets under management (as at 9 January 2006). The group has approximately 59,000 employees and 30 million customers worldwide.
- The information in this document reflects Navigator Australia Limited's ('Navigator') ABN 45 006 302 987 understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. The information given in this document is of a general nature and has not taken into account the investment objectives, financial situation or particular needs of any particular person and it is not a substitute for professional advice. A PDS is available from NULIS or your financial adviser. Applications to invest in investment product(s) through the investor directed portfolio service ("IDPS"), operated by Navigator, must be made by completing the application form attached to the applicable IDPS Guide Offer Document and Investment Allocation Authority. Before making an investment decision on the basis of the information above, a prospective investor needs to consider, with or without the assistance of a professional adviser whether the information is appropriate in the light of their particular investment needs, objectives and financial circumstances. Aviva does not receive any remuneration in relation to the provision of information available from this press release which is of a general nature only.