A lump sum death benefit to a dependant of the member is tax free. If the benefit is paid to a non-dependant or to the member’s estate it can only be paid as a lump sum and tax of 15%* applies to the taxable component. No tax applies to the Tax Exempt component.
If paid as an income stream and the member was aged at least 60 years at death, the payment would be tax exempt to a reversionary beneficiary. If less than 60 at the time of death the taxable component of the income stream would be taxed at the recipients MTR* however a 15% offset would apply. Once the reversionary reaches age 60 no tax is payable on the whole amount.
If paid to a dependant child the above would apply only until the child was 25, unless the child was permanently disabled, when the balance would be paid as a lump sum tax free. If the payment is made to a child who satisfies the definition of disability, the payments can continue indefinitely.
If the payment is made as an income stream, even if it had not been commenced at the time of death, the above applies.
Paid to a non-dependant, the whole taxable component is taxed at 30% plus Medicare levy.
Paid to a reversionary beneficiary aged 60 years or more – the income is taxed at MTR* with a 10% offset applying. If the member was less than 60 atthe time of death the 10% offset will not apply until the reversionary beneficiary turns 60. Pensions cannot revert to non-dependents and only lump sums can be paid if applicable.
It is important to note that Death Benefit payments received count towards the beneficiary’s Personal Transfer Balance Cap however the amount won’t be credited to the Personal Transfer Balance until 12 months after the death of the original recipient.
From 1 July 2017 a death benefit income stream can only be commuted to facilitate the commencement of a new death benefit income stream, with the same or different provider, or be paid as a death benefit lump sum.