Depending on who your super is paid to – and how they receive the money – there may be taxes involved.
For lump sums, tax will depend on whether it is received by a tax-dependant. This is different to a super dependant and includes:
- your spouse (including a de facto spouse) or former spouse
- your children aged under 18
- someone fully financially dependent on you
- someone you had an interdependent relationship with.
If a tax-dependant receives your super as a lump sum, it’s tax free. In this case, your beneficiary doesn’t need to include it in their income tax return. However, a non-tax dependant may be required to pay tax on part or all of the lump sum they receive.
If a lump sum is paid to your estate, the tax will depend on whether it will be directed to tax dependants or non-tax dependants via your estate.3
For super paid to your beneficiary as an income stream, tax will depend on a range of factors, including the age of both you and the recipient and the taxable and tax-free components of your super account. In most cases, if either you or your beneficiary are aged 60 or over, the income stream payments will be tax free.
That doesn’t mean paying a lump sum to your dependants is always the smartest option. You should consider speaking with a financial adviser if you’re unsure on the most tax-effective way to pass on your super or just want to know more about how these taxes work.