Contrary to popular belief, Australia does actually have some form of death tax that means you can’t just dump all your money into your super and get away with completely tax-free savings – it’s not a traditional death tax like the one Australia had prior to 1983, but it is a tax on your super death benefits when left to non-dependents.
This potential tax hit can actually be fairly significant the more money you put into your super, so let’s take a closer look at how this works.
Non-Dependents
While kids under 18 and partners get their money completely tax-free, there’s a 15% tax on the money an adult child will receive after a super fund member dies and the money is passed onto a non-dependent – naturally causing a bit of surprise for those who thought the super inheritances destined for their children wouldn’t be taxed.
Unfortunately, it gets slightly worse, too, since if your children are over the age of 18 by the time you die, they might even face a tax on their super inheritances of up to 32%.
How to Avoid This
We’d suggest the following tips to mitigate some of the issues we just outlined:
- Try to withdraw your super promptly after the age of 60 so that it becomes part of your estate – whether it’s in your bank account or other investments.
These won’t be subject to the death benefits tax we outlined earlier, but any investments you make might still be subject to income tax and CGT – however, that’s far less significant if you’re a pensioner because of the generous concessions you receive.
- We’d suggest working with us for this one, but withdrawing your super fund and re-contributing it can be another way of avoiding this tax.
- If you’re fairly wealthy and have enough assets to fund your retirement, it might be possible to withdraw your super when it’s tax-free and distribute it among your family and friends.
Inheritance Tax Guidance with Advisory One
While we’ve outlined some sound strategies regarding how you can avoid this kind of inheritance tax, it’s full of legal jargon and complications that make it fairly complicated to do without a solid background in finance.
Because of this, we’d recommend working with our team of chartered accountants and financial experts at Advisory One so you can ensure your children will receive the super inheritance they deserve – get in touch by calling us on 02 6324 5888
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