RECENTLY I've received a number of emails asking about the death tax of 16.5 per cent on the taxable portion of a superannuation payout that is left to a non-dependant. In this context, a spouse is always a dependant, whether they are working or not.
One way to lessen the death tax is to reduce the taxable portion of your super. This is usually done by withdrawing funds once you reach 60 when withdrawals become tax free, and then re-contributing them as non-concessional contributions. Advice should be taken as there are heavy penalties for exceeding the caps, and it is not possible to do this once you reach 65 unless you can pass the work test.
Recently I recommended to a reader that they simply withdrew their superannuation tax free prior to death as this would avoid any death tax that would be payable on it but they wondered how this could be done in view of the fact that few people know the date they are going to die.
It's important to understand that the main purpose of superannuation is to save tax. Therefore, if you are thinking about moving your superannuation to cash you should ask your accountant or adviser to calculate what your tax position would be before and after the transaction was completed. If the amount in superannuation was relatively small you may well find that there is no benefit in retaining the money in super.
Once the money leaves super it becomes part of your estate and can be bequeathed to whom you choose in terms of your will. If you believe there may be arguments between the beneficiaries you could always invest the money in insurance bonds - they cannot be challenged under the will.
Noel Whittaker is a co-founder of Whittaker Macnaught Pty Ltd. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. His email is firstname.lastname@example.org
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