Tax treatment of lump sum death benefits

Beneficiary (Tax definition)	Tax free component	Taxable component
		Element taxed	Element untaxed
Dependant	Non-assessable non-exempt income	Non-assessable non-exempt income
Non-dependant		15%*	30%*
Estate		Benefit is taxed as above depending on the extent to which a dependant or non-dependant benefits from proceeds**
* Plus Medicare levy. ** Medicare levy is not payable if a super death benefit is paid to the deceased’s estate

Calculation of taxed and untaxed elements

Where a lump sum death benefit is paid to a beneficiary who is not a dependant for tax purposes and the trustee of the fund has either claimed a deduction for life insurance premiums or for the future service portion of the benefit, the death benefit may include an element untaxed. The components will be calculated as follows:

Component

Calculation

Tax free

Taxable (element taxed)

Tax free component calculated under normal rules

Greater of:

——————————————————- Service days

Amount of lump sum x ————————————————- – tax free component

—————————————-Service days + Days to retirement

And

Where:

Days to retirement = no. of days from day died to last retirement day (assumed to be 65th birthday in the absence of a specified retirement age)
Service days = no. of days in service period for the lump sum
Note: a further adjustment to this calculation applies if the death benefit lump sum is paid from an interest that existed pre 1 July 2007 which has an element untaxed and where deceased client had pre July 83 service

Taxable

(element untaxed)

Amount of lump sum less element taxed, less tax free component

Superannuation and estate planning

Death benefit income streams

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