In this episode of It Depends, partners Scott Hay-Bartlem and Clinton Jackson explain the difference between superannuation member benefits and death benefits and why it matters for your estate planning and tax outcomes.
Payments made while you’re alive usually qualify as tax-free member benefits, but payments made after death are treated differently and may attract tax depending on the recipient.
Before making a last-minute withdrawal to secure tax advantages, it is important to consider factors such as eligibility, timing, the impact on your estate, and potential conflicts of interest if an attorney is involved.
For a deeper dive into navigating these complex rules and making informed decisions, check out our podcast SMSFs with CGW. Available on Spotify, Apple Podcasts and the CGW website.
Video transcript
Welcome to this edition of It Depends, where we talk about the difference between superannuation member benefits versus superannuation death benefits.
Why do we care?
A member benefit is a payment that is made to you from your superannuation while you’re alive, and is usually tax free, if you’re over 60 and were able to release some money from super.
Whereas a superannuation death benefit payment is a payment made as a result of your death to someone else. The tax rate for that payment will depend on who the recipient is, whether they are a taxable dependent or not, and the tax rate would be somewhere between 0% and 30%, depending on the components of that death benefit.
What is the difference?
So, a superannuation death benefit is one that is paid after death. Now this means to get it the tax free treatment of being a benefit paid as a member benefit, the payment has to occur while the member is still alive.
The tax office, in their private binding rulings, they’ve made it really clear in recent years that their view is once the trustee knows the member has died, a payment that occurs after that is going to be a death benefit.
So, the key is you can’t just start the payment and hope it gets out. For it to qualify as a tax free member benefit, it’s got to occur before the trustee knows the member has died.
So if I can make the payment before the member dies, should I?
Well, this is the it depends.
Why not?
So, there are quite a few things to consider before you make a deathbed withdrawal to try and get money out as a member benefit before the member has died.
So things like, can the person who’s dying actually withdraw their super. Not everyone can withdraw their super, particularly if you’re under 65.
You have to look at what the consequence will be on the estate planning, because it can fundamentally change who gets your money. If it’s going to be going to a surviving spouse then maybe the tax isn’t going to be such an issue.
How do we get the money out? What is the process we have to follow? Are we transferring real estate? Do we have other transaction costs such as stamp duty? And often we find that these withdrawals are being done by an attorney under an enduring power of attorney on behalf of a member who’s lost capacity.
Can they do it? Is there a conflict of interest? Is it in the member’s best interest or the attorney’s best interest? So, there’s a lot of things to think about before we actually do the withdrawal. Even if we think we can do it in time to make it a tax free member benefit.
So as you can see, there’s a lot to consider in this space. If you’d like some more detail on member benefits versus death benefits, have a look at our podcast, SMSFs with CGW, where we go into this issue further. Or alternately, give a member of our team a call. Thank you for watching this episode of It Depends.
