Until recently, the ATO’s view was that, once deceased, a pension member’s superannuation account goes back into “accumulation mode”, with any capital gain on disposal of assets to fund the payment of a death benefit therefore subject to Capital Gains Tax (CGT) and any income earned prior to payment of the benefit subject to income tax.

What’s changed?

The government has announced that it will amend the law to allow the tax exemption for earnings on assets supporting superannuation pensions to continue following the death of a fund member in the pension phase until the deceased member’s benefits have been paid out of the fund.

Effective from 1 July 2012, this change means that pension assets can be sold to fund the payment of a death benefit without incurring tax on the sale of those assets or tax on income earned prior to payment of the death benefit.

What will stay the same?

This change will have no impact on the tax payable on death benefits paid to non-dependants.  This remains unchanged at a rate of 16.5% including Medicare Levy on the taxable component of the benefit.

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