I was aware bequeathing a super account to a non-dependent was subject to tax, but doubling that tax in common circumstances is new information. Many might not care how much of their super estate gets to the designated recipient if not a dependent, but often those are adult children.
For American citizens it is more onerous because there is no legal way to withdraw super without paying tax on it to the US (in most cases) although that tax rate will probably be lower than Australian taxes on wages and general income.
I also read this article - then searched for more information. It appears there are (legal) ways & means to reduce your superannuation’s (prior to your death) tax debt, in order to maximise the amount available to any beneficiaries.
I will not have a particularly large amount for my Executors to distribute, but I will be making an appointment with my (independent, not-for-profit) financial adviser! I had no idea that Super was taxed more than 15%…
Not financial advice - just my understanding of how it works.
That is the case for all (?) but American (and I believe Eritrean) citizens. Re the US if an American citizen takes super (excepting narrow exemptions in the tax treaty) it is taxed as capital gains in that US financial year. How might the US know? See FATCA. Australia does not tax super pensions excepting in specific circumstances such as components of government defined benefit pensions.
Australia takes tax at death as indicated in the article, but unless it is >$USD11.4 million it is exempted from US taxation.
American citizens (and others obligated to pay US taxes) pick who they want to pay, factor in xrates of the moment, and hope they got it close enough to right.
In the general case for all, for couples the problem is usually left with the survivor to resolve.
The ABC news article is somewhat confusing to understand. It is better to read the advice on the ATO website:
One should also seek professional advice when preparing wills or preparing for one’s inevitable death, if one is concerned about the impact on the estate from taxes and duties. This includes super taxes, capital gains taxes or other charges which may occur.
Whilst the article points out that 32% rate can apply to the ‘untaxed element’ of the ‘taxable component’, it doesn’t state that it would only apply to a small percentage of super payments.
The tax rate of 32% applies only to certain payments from untaxed super funds The below quote is from the ATO website.
"Untaxed super funds are generally run by Commonwealth, State or Territory government departments, and are generally either:
public sector super schemes
constitutionally protected funds."
It is also worth noting that withdrawals of the ‘untaxed element’ of the ‘taxable component’ by the member prior to death are not tax-free. They are taxed at a maximum rate of 15% plus Medicare up to a threshold and 45% plus Medicare for amounts above that threshold. This means that the recontribution strategy, discussed in the article, is unlikely to eliminate the full tax liability.
If you are referring to CPFs, they still exist, but they are not typical of the super funds most of us contribute to. Thanks for pointing this exception out.
It was suggested previously one of the best sources of information and to ensure we do not confuse each other is a members super fund. Aside from verbal advice all the major funds provide members guides. The following example on taxation of contributions and withdrawals is from QSuper which offers super options to Qld State Govt employees.
Note the information relates only to QSuper members. It is consistent with the general tax provisions advised by the ATO.
