Scott Quinn, senior technical services manager for MLC, said on a recent webinar that to satisfy a terminal medical condition of release, it is first necessary for the member to obtain two medical certificates, of which one has to be from a specialist.
“Terminal medical conditions of release are very specific and this means that someone is likely to pass away in the next 24 months. They’ve got two medical practitioners to certify that,” Quinn said.
“We know that these certificates last for 24 months, but in practice it’s not going to be 24 months that these are going to be valid for, because you need an overlapping period.”
He explained that, even though the certificates may indicate the member will pass away within the 24-month time frame, they may only be valid for 21-22 months, depending on the date of the certificates, as they come from two different medical practitioners, and the corresponding dates may differ.
“A terminal medical condition of release is really powerful, because you can actually be a 28-year-old drawing money out of superannuation and paying no tax whatsoever.”
“Additionally, over the age of 60, this may happen too, as might be seen with some of your government-defined benefit schemes, for example. But the other thing that can be quite powerful is if it is a child who is not partnered and their benefits are going to Mum and Dad.”
Quinn said in this scenario, the parents are usually not financially dependent on the child or in an interdependent relationship, so when the child passes away, the payout becomes a death benefit, with the subsequent death benefit taxes applied.
“[In this situation] you could actually draw that benefit out before the child passed away, have no tax implications, and then pass that to Mum and Dad through the deceased estate.”
“It’s a different way of getting there, but you could be potentially avoiding some tax by not going down the route of superannuation death benefits.”
However, he warned there is one thing to be very careful of when using a terminal medical condition of release: that the member satisfies this release condition with their superannuation fund, and then rolls their benefits out from one fund to another.
“The problem you have is that it is seen as a full withdrawal and a brand new contribution going into the new superannuation fund.”
“It could be seen as a new contribution and there may not be room under the member’s contribution caps and you will end up with an excess, non-concessional contribution issue.”
