The rates (non-dependant, lump sum)
- Non-taxable component (the ATO's name for it is in its guidance linked below): not taxed.
- Taxable component, taxed element: taxed at up to 15% plus Medicare levy (up to 17%).
- Taxable component, untaxed element: taxed at up to 30% plus Medicare levy (up to 32%). This usually arises where a fund has claimed deductions for insurance premiums or the fund is untaxed.
Example: a $500,000 taxed-element taxable component paid to an adult non-dependant child could cost up to $85,000 in tax (17%). The fund withholds the tax, and the child can claim the Medicare levy portion through their tax return as applicable.
Who counts as a dependant?
For tax purposes a dependant includes a spouse or former spouse, a child under 18, someone financially dependent on you, or someone in an interdependency relationship with you. Most adult children are not dependants, which is why this tax applies to them.
Levers to discuss with an adviser
- A recontribution strategy can convert taxable component into non-taxable component while you are alive, subject to caps and eligibility.
- Binding death benefit nominations and estate planning: see binding nominations.
- Model the impact with our super death benefit tax calculator.
Quick answers
How is super taxed when left to adult children?
For a non-dependant adult child, the non-taxable component is not taxed, the taxed element is taxed at up to 17% including Medicare levy, and the untaxed element at up to 32%.
Can I reduce death benefit tax on super?
Strategies such as a recontribution strategy may reduce the taxable component. Eligibility rules and caps apply; get personal advice.
Related reading: Binding death benefit nominations
Sources
General advice warning. This article is general information only and does not take into account your objectives, financial situation or needs. Rules, rates and thresholds change; check the sources above. Consider the relevant PDS and our Financial Services Guide and seek personal advice before acting. FinForce is a Corporate Authorised Representative (No. 001241242) of Financial Force Pty Ltd, ABN 42 091 425 464, AFSL 238337.