Tax implications of withdrawing super before death

If a superannuation member has no tax dependents to receive their death benefits tax free, the member could withdraw their entire benefits before they die to avoid taxation, according to Townsends Business and Corporate Lawyers.

Jeff Song, Townsends Business and Corporate Lawyers superannuation online services division leader, said the withdrawn money would become the member’s “personal asset” which could be distributed tax free to any non-dependents such as their independent adult children.

“Getting the timing of withdrawal right is critical and generally a member would prefer to withdraw their benefits just prior to their death however it is inherently a very difficult task as no one really knows when their time will be up,” Song said.

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“If they are too late in withdrawing and the benefits retain the legal character of ‘superannuation’ as at the time of their death, the taxable portion of the benefits will be subject to 17% (taxed element) or 32% (untaxed element) tax in the hands of the non-tax dependant beneficiary.

“On the other hand, if the withdrawal is too early, there is opportunity cost of not having the sum invested in the concessional tax environment of super for as long as possible.”

It’s a strategy that could be of interest to elderly or critically ill members with no tax-dependent beneficiaries.

In other cases, except sudden accidents, a member or their enduring attorney could be afforded the opportunity to request a withdrawal.

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