Budget tipped to address death benefit issues
The upcoming budget is expected to include some refinements aimed at addressing unanticipated consequences from the major super reforms, including issues surrounding death benefit planning, according to tax experts.
Tax Consultant to Thomson Reuters Ian Murray-Jones said the superannuation sector is likely to escape the 2018 budget without further damage, as it already has enough on its plate with existing reforms.
“As is the case with any major reforms, refinements are often necessary to address unanticipated consequences. This suggests that any additional Budget measures are likely to [be] welcomed by the super industry,” said Mr Murray-Jones.
“Watch for any fine-tuning to reduce the complexity surrounding death benefit planning under the new $1.6m pension cap,” said Mr Murray-Jones.
EY partner Ian Burgess agreed that the government needed to address certain issues around death benefits in superannuation.
“There is one major anomaly which I think should really be addressed and that is the 'death tax', the 15 per cent tax on benefits paid out to adult kids who are by definition are non-dependents,” he said.
“So if you have a member aged 60 plus, they can take their money out tax free while they are alive but when they die if the monies go to children who are not tax dependent, so over 18, then there's a 15 per cent tax payable on the taxable component.”
Mr Burgess said it is unlikely that the government collects much of that tax because there is so much time and effort in the industry put into planning around that such as putting in place enduring powers of attorney so that money can be withdrawn while the member is still alive.
“To me it doesn't make sense if the member can take the money out tax free over 60 then on their death it should come out tax free regardless of who it goes to.”
