- What is a Lump Sum Death Benefit
- How Much can I withdraw as a Lump Sum Death Benefit
- Tax on a Lump Sum Death Benefit to a Non Tax Dependant
- Lump Sum Payment & Insurance Proceeds (Untaxed Element)
- Lump Sum Death Benefit Paper Work
- Paying the Death Benefit
- Lump Sum Death Benefit for Defence Forces & Police
Having determined the components of the super balance, preserved, taxable/non taxable, etc, the amount of the super account, and the strategies to withdraw, you then have the information you will need to complete the documentation to withdraw as a LUMP SUM or PENSION or both as follows:
What is a Lump Sum Death Benefit
A Lumo Sum Death Benefit is the Cashing in and payment of a members account balance as a consequence of death. Upon death of a member a lump sum death benefit must be paid, to find out how to payout as a lump sum and save tax <click here>; and to find out how to payout as a pension and save tax <click here>.
A death benefit paid to a Tax Dependant will be tax free (s302-60), to find out who is a tax dependant, see “‘who can be paid the members account balance‘ page <click here>.
How Much can I withdraw as a Lump Sum Death Benefit
A Trustee can payout the entire balance of the members account balance as a Lump Sum Death Benefit.
Tax on a Lump Sum Death Benefit to a Non Tax Dependant
A death benefit paid to a Non Tax dependant from a taxable component will not be tax free, tax will be payable, see the table below:
| Non Tax Dependant Component received |
Tax Payable |
| Tax Free Component <click here> |
Nil
|
| Taxable component – taxed element <click here> s302-145 |
16.5%
|
| Taxable component – untaxed element (from Insurance proceeds <click here>) |
31.5%
|
| Assumes TFN quoted to SMSF by beneficiary |
|
Lump Sum Payment & Insurance Proceeds (Untaxed Element)
Obtaining Insurance through a SMSF is advantageous, the premiums are tax deductible, however the Insurance Proceeds are on capital account and not assessable. Because no tax is paid on the proceeds and the premiums are deductible that a untaxed element arises when the proceeds form part of the deceased’s account balance. Accordingly where the death benefit that contains insurance proceeds (and an untaxed element) is paid to a non tax dependant a tax liability arises as stated in the <above table>. This is also briefly discussed in the strategies for paying death benefits, <click here> to read more. A formula is provided within S307-290 of the SIS act, to calculate this untaxed element.
A way of eliminating the Tax on the untaxed element is to Pay a Death Benefit Pension instead. A untaxed element only arises when a Death Benefit LUMP SUM is paid. A Death Benefit PENSION will not have an untaxed element and therefore it will be Tax Free
Lump Sum Death Benefit Paper Work
No Lump Sum pre payment statement is required to be completed. Where tax is payable a PAYG Summary needs to be completed a copy provided to the recipient within 14 days of payment and the other copy to the ATO.
Paying the Death Benefit
The net amount (after deducting any tax) can be paid by cheque or any other means made payable to the beneficiary or the LPR. Where it is paid to a LPR ie the executor of the estate then the gross amount is paid, no tax is deducted (S302-10), as the recipient may or may not be a tax dependant. The Executor would need to deduct any tax paid to a non tax dependant beneficiary of the estate. The Executor is bound however to use the proportionate rule when determining how much of the death benefit is paid to tax and no tax dependants, the trustee cannot stream death benefits, unless the will specifically provides for it.
Lump Sum Death Benefit for Defence Forces & Police
Lump Sum Superannuation Death Benefits paid to either dependants or non dependants of defence force personnel and police officers who died in the line of duty are taxed more favourably, to read more see <ATO-Link>.
Here’s what the ATO says <ATO-Link>.
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