Tax Tip 313: Strategy for Single Person to Save Tax on Super at Death

Discussion in 'Accounting & Tax' started by Terry_w, 25th Sep, 2020.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    A single person may have no spouse and they may have only adult children who are no dependant.

    If this person were to die their super would come out and it would be taxed on part of it as he has no tax dependants.

    See Tax Tip 312: Ex-Spouses and Taxation of Superannuation Death Benefits


    Since a former spouse is a ‘tax dependant’ as defined under the tax law, one strategy is to leave your super not to the children, but to the former spouse. This would need to be done by getting the super death benefits payable to the estate and then out to the ex-spouse via the will.


    Example

    Homer and Marge divorce. Homer is about to attempt a dangerous stunt – jumping over the 3 sisters on his motorbike and is doing his will just in case he doesn’t matter. Homer’s stage name for this stunt is Homer Knievel.

    Homer has a large amount of superannuation including life insurance with a lot of potential tax to be paid when he leaves it to his kids as they are all over the age of 18.

    Homer hates Marge with a passion. But there is something he hates more – paying tax unnecessarily.

    So Homer does a Binding Death Benefits Nomination to make sure his super is paid into his estate and has set up a will so that the super will be held on a separate trust for his dependants as defined by the s302-195 ITAA97.

    If he dies before Marge, which is likely, Marge will get the super tax free.

    Homer is happy as he knows Marge will look after the kids (and not waste it on a new spouse).
     
  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    BUT...care should be taken since the former spouse would have no basis to share with those adult kids. Some may. What certainty ?
     
    Terry_w likes this.

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