Death Benefits Tax

Death benefits tax is the tax levied on the taxable component of a superannuation death benefit when it is paid to someone who is not a tax dependant — typically a financially independent adult child. The taxed element is generally taxed at 15% plus the Medicare levy, while any untaxed element can be taxed at up to 30% plus levy. Benefits paid to a tax dependant, and the tax-free component for anyone, are not subject to this tax.

Death benefits tax is often called the "adult-children's super tax" and shapes how families allocate assets between a Will and super. Example: Wei left her $400,000 super (mostly taxable component) to her independent adult son, who paid around $66,000 in death benefits tax, so her adviser suggested directing super to her spouse and gifting other assets to her son via her Will. Routing super through the estate does not avoid the tax — the same dependant test is applied to whoever ultimately benefits — though, unlike a direct payment, the Medicare levy is not charged on benefits paid via the estate.