Money
The tax your kids pay on your super, and nobody sends a warning letter
Super left to an adult child is taxed at up to 17% on the taxable component, and up to 32% where there is insurance in the fund. A lot of it can often be removed while the member is alive. None of it can be removed afterwards. This calculator puts a dollar figure on it for free, and the full report prices every lawful way of reducing it.
Many people think super is tax free after 60. It is, right up until they die.
There is no inheritance tax in Australia and this is not one. It is a rule in Division 302 of the Income Tax Assessment Act 1997 that taxes the taxable component of a superannuation death benefit when it is paid to somebody who is not a death benefits dependant. A spouse is one. A child under 18 is one. An adult child who is not financially dependent is not, and that single gap is where the whole tax comes from.
Nobody has a duty to raise it. A fund administers the account and pays the benefit. An accountant sees the tax return rather than the nomination form. A solicitor drafting a will is frequently never told about the superannuation at all, because superannuation does not automatically form part of an estate. So the first time many families see the figure is on a payment summary, months after a funeral, when the components have already been fixed and nothing can be changed.
The tax free half of a superannuation balance is a fixed number of dollars. Every dollar the fund earns lands on the taxed half, so the exposure rises every year on its own while nobody is looking at it.
What the calculator works out for you
- The tax as it stands today, exactly, from the balance and the taxable component on a member statement, with the rules that switch on shown line by line.
- What that bill becomes over the years ahead, because the taxable component compounds and the tax free component does not.
- How much more the family could keep if things change while the member is alive, on their own figures.
- Every legal option, named and explained, with what each one would involve, so it is clear there is a choice to make.
- Whether an untaxed element applies under section 307-290, which is what turns 17% into 32% on part of a benefit with insurance behind it.
taxable component × the share going to non-dependants × 17% = the tax
What you get in the full report
- Every arrangement priced and put in order, to the dollar. What each one leaves the beneficiaries after every tax on the way, and how far behind the leader each of the others is.
- Taking money out and putting it back in, round by round. How much each one converts, why each one converts less than the last, and which of the three limits (the cap, the balance or age 75) is the one that stops it. With insurance in the fund, the untaxed element is worked out on the member's own service period too.
- The estate route priced separately. The Medicare levy is not imposed on the trustee of a deceased estate, and what that is worth against what it costs in exposure to a family provision claim.
- Where the answer changes. Every return from 2% to 10%, every period from one year to thirty, and the year at which holding the money outside superannuation stops being worth it.
What this calculator won't do
It will not tell you what to do. It ranks every arrangement on one arithmetic measure and never calls one the best, because that is a personal recommendation and this is an information service rather than a licensed advice service. The components of a superannuation interest are worked out by the fund, and the fund's figures govern rather than an estimate typed into a form.
There are also things the measure cannot see, and the report names them on the page rather than burying them: whether the money can be afforded to be moved at all, what a withdrawal does to an age pension or an aged care means assessment, whether a family provision claim is likely, what a will says, and what a fund's own trust deed permits. A licensed financial adviser is the person who can recommend a course of action, and anything involving a will or a nomination is a solicitor's work.
What people ask before they run it
Do my children pay tax on my super when I die?
Yes, if they are adult children who are not financially dependent on you. They are not death benefits dependants for tax purposes, so the taxable component of your super is taxed at up to 15% plus the 2% Medicare levy, or 17% in all. Any untaxed element, which usually comes from life insurance inside the fund, is taxed at up to 32%. The tax free component reaches them untouched.
How much tax will my kids pay on $1 million of super?
On a $1 million balance that is 90% taxable component, adult children pay $153,000 in tax. That is $900,000 exposed at 17%. The split between the tax free and taxable components decides the bill, not the balance, which is why the calculator asks for it. The same $1 million with a $390,000 tax free component leaves $610,000 exposed and a bill of $103,700.
Is there a death duty or inheritance tax in Australia?
No. Australia abolished estate duties in 1979 and has no inheritance tax. The tax on super death benefits is income tax under Division 302 of the Income Tax Assessment Act 1997. It is charged only on the taxable component, and only when the person receiving it is not a death benefits dependant. For the families it lands on, it works a lot like a death duty, which is why so few see it coming.
Can the tax on a super death benefit be avoided?
Most of it usually can, but only while you are alive and have met a condition of release. Taking money out and putting it back in as a non-concessional contribution turns taxable component into tax free component: $130,000 a year, or $390,000 using the bring-forward rule. Sending the benefit to your estate instead of straight to the beneficiary also removes the Medicare levy. Nothing can be done after death.
Why is life insurance inside super taxed at a higher rate?
Because the fund has never paid tax on it. When a fund deducts the insurance premiums, section 307-290 turns a fraction of the whole lump sum into an untaxed element. That part is taxed at 30% plus the levy instead of 15% plus the levy. The fraction is largest for the youngest members, disappears entirely at 65, and reaches the balance as well as the cover.
Does leaving my super to my estate really save tax?
Yes, it saves the 2% Medicare levy on the taxable component going to non-dependants. The levy is charged when a death benefit is paid to a person, but it is not imposed on the trustee of a deceased estate. So the same money reaching the same people through a will is taxed 15% instead of 17%. The catch: estate money can face a family provision claim and the estate's creditors, and waits for probate.
Who counts as a death benefits dependant for tax?
A spouse or former spouse (including a de facto partner), a child under 18, a person in an interdependency relationship with you, and anyone who was financially dependent on you. They pay no tax on a super lump sum, at any age and on any amount. An adult child who is not financially dependent does not count for tax, even though super law lets a fund pay them directly. That gap between two Acts is where this tax comes from.
How does the super re-contribution strategy work?
You take money out of super tax free after 60, with a condition of release, and put it straight back in as a non-concessional contribution. The money going back in lands entirely in the tax free component, so the taxed part shrinks. The cap is $130,000 a year, or $390,000 using the bring-forward rule, and it can be repeated every three years until age 75.
Can my family reduce the tax after I die?
No. The components of your super are fixed as at the date of death, and no executor, beneficiary or fund can restructure them. A fund also has to pay a death benefit out as soon as practicable. Every lawful way of reducing the tax, from a re-contribution to changing who the benefit is paid to, has to be done while you are still alive.
Why does the tax on my super get bigger every year?
Because the tax free component is a fixed number of dollars and never grows. Every dollar your fund earns, from interest, dividends, rent or capital growth, lands in the taxable component. So even if you do nothing, the taxed share of your balance keeps rising. A $920,000 balance that is 92% taxable today would be about 98% taxable in twenty years at 6% a year.
What does the full report add to the free estimate?
It puts a dollar figure on every lawful option using your own balance, instead of just naming them. It ranks them on one stated measure: what actually reaches your beneficiaries. It also shows how much each further re-contribution cycle converts, which is the figure that tells you whether waiting another year costs you anything.
Everything on Super Death Benefits Tax Calculator
Your estimate is free, and it is a real answer.
Works out the tax payable on an Australian superannuation death benefit paid to somebody who is not a death benefits dependant, applies the current contribution caps to every lawful way of reducing it, and ranks the options on what actually reaches the beneficiaries.
Start the Death Benefits Tax calculatorOther decisions worth checking
RAD or DAP
The aged care accommodation decision, priced both ways
Small Business CGT
The four concessions, priced in every lawful order
Division 296 Projector
The $3m super tax, on your own figures
Child Support Calculator
The eight step formula, all ten change of assessment reasons, and every night of care priced