Taxation of Super Death Benefits When a person dies their superannuation will be paid out to either a dependant or to their estate (and then dealt with by the will or intestacy laws). The trustee of the fund will decide who gets the proceeds, subject to any binding directions by the member and/or the terms of the trust deed. See my legal tip on this: Legal Tip 146: Who can receive your Super when you die? Legal Tip 146: Who can receive your Super when you die? There are different taxation consequences for different classes of people receiving lump sum payments of super death benefits. Firstly, consider super is made up of 3 different components: • Tax Free Component • Taxable Component, which consists of: o Taxed Element o Untaxed Element Where the recipient is a tax dependant: • The Tax Free Component is tax free to the recipient • The Taxable component is not taxed – it is classed as Non-Assessable Non-Exempt income. Where the recipient is a tax non-dependant: • The Tax Free component is tax free to the recipient • The Taxed Element of the Taxable Component is taxed at 15% • The Untaxed Element of the Taxable Component is taxed at 30% The Medicare Levy will also apply. Remember that Adult children (those over 18) will be tax non-dependants. Note that there are two definitions of ‘dependants’ for super purposes. One is the Super law definition and the other is the Tax law definition. They are slightly different to each other – an adult child can be a dependant under the super laws but may not be a dependant under the tax laws. This may mean they can receive a payment of death benefits but it will be taxed differently to the payment received by their younger sibling. Where the super death benefits are paid to the estate (i.e. via the will or intestacy laws) it will be taxed as above to the extent that the beneficiaries of the benefits will be tax dependants or tax non-dependants. This is why it may be worthwhile considering a Superannuation Proceeds Trust being set up in the will to segregate super death benefits so that these can be paid to tax dependants.