January 28, 2016

No such thing as death duties in Australia? Ha! Death frequently results in a member’s balance needing to be paid out of the superannuation fund. When it’s paid to someone other than a financial dependant, the payout is subject to tax. Further, and whilst death itself does not give rise to CGT, it can set in motion actions that can result in CGT.

To find out more about how death can impact upon superannuation and cause CGT which has a knock-on effect that could affect your beneficiaries.

Your superannuation and CGT assets are important considerations in your estate planning and how they are structured can have significant tax consequences. As families are reunited during the holiday season and it’s noticeable that no one escapes the ageing process, now may be an appropriate time to consider this aspect of your estate planning.

Due consideration and planning will mean that tax can be reduced, deferred, or potentially avoided altogether, by undertaking steps during your lifetime to limit the exposure to tax upon transfer of assets to beneficiaries after your death. For your superannuation assets, this will include taking steps to continually review the taxed components of a member’s accounts, and preventing any unnecessary fire sale of assets when a member’s superannuation balance needs to be paid out.

Irrespective of how, and to whom, a superannuation balance is paid out, the movement or sale of assets to facilitate a payout will give rise to questions of CGT. This is particularly the case where the payment of the benefit to the ultimate beneficiary is not made swiftly after the death of the deceased, and in the absence of the dependant spouse or child under 18 to continue the pension after your death. Under those circumstances there is a possibility of taxation both at the super fund level on disposal of the asset(s) and again at the beneficiary level upon receipt of the benefit.

Strategies such as re-contribution to superannuation (to increase the ‘tax-free component’ of the super fund) and monitoring cost bases of CGT assets (to ensure that deferred capital gains are either limited or planned for) are important considerations.

These considerations are not limited to superannuation. Structuring assets in trusts and companies that can continue holding assets despite the death of a director/shareholder, can also create tax efficiencies and facilitate intergenerational transfer of wealth without the need to consider CGT. For example, if an asset is held in a family trust, then upon death the trust will survive and can continue to hold the asset without the need to consider liquidating the asset or in-specie transfer of the asset to pay out distributions according to the Will. In this instance, estate planning will focus on the transfer of control of the asset, potentially by amending the trustee succession clauses in the trust deed or varying the constitution to accommodate succession planning of the directors of the trustee company, rather than nominating beneficiaries to whom ownership of the asset shall be transferred, thereby avoiding the immediate taxation implications associated with transfer of ownership.

For anyone with superannuation or CGT assets, it’s important to seek advice specific to your circumstances so that your beneficiaries avoid the expense of unnecessary tax upon your passing.

BrentnallsNSW can help you understand the complexities of your superannuation and CGT assets in the context of your estate planning goals. Please contact us.