Self Managed Super Funds, Tax & Pensioner Benefits on Death

While a super fund member is drawing from a pension account in their fund, the income of the fund attributable to their account is generally free of any tax. That is a big “free kick” for self funded retirees on super fund pensions , especially if they too are not taxed on the pension income.

However, what happens when a super fund pension member dies? People thought either:

  • Nothing happens - the tax free status of the fund continues, if the fund needs to sell assets to pay a death benefit there is no tax; OR
  • Everything happens – the fund is now not in pension and the assets, when sold, incur full capital gains tax and all income incurs full income tax

The ATO has expressed their preliminary view, which matches that of many practitioners, that once a super fund member dies, the status of their fund account changes. So a pension member would not continue to get the tax break and therefore their beneficiaries will fork out a heap of extra capital gains tax on liquidating its investments.

There are some ways around this so it is best to get professional advice about tax planning for your fund. Contact us to talk about how we can help with your super fund taxation issues.

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