The federal government has announced it will be amending a legislative irregularity currently enabling death benefits that include life insurance proceeds and are rolled over into an alternative superannuation fund to be taxed.
Assistant Treasurer Stuart Robert made the announcement at the Alliance for a Fairer Retirement System inaugural summit in Sydney today.
“There actually is an anomaly here in the tax treatment of the death benefits taken out of super and it’s out of line with policy that death benefits are tax-free for dependants,” Robert said.
“This measure will ensure that death benefit lump sums remain tax-free for dependants even if rolled over into the superannuation system.”
SMSF administrator SuperConcepts welcomed the move to eliminate the unintentional consequences of the original legislation.
“We certainly welcome this issue being rectified because it wasn’t the original intention to penalise dependants, but people were at risk of suffering unintended consequences of this tax liability,” SuperConcepts SMSF technical services executive manager Mark Ellem said.
“Death benefits are meant to be tax-free to dependants and not a situation where emotional stress is compounded with financial stress, so it is good to see the Minister addressing this in his first public foray discussing superannuation.”
Ellem said the new law will mean death benefit lump sums stay tax-free for dependants even if they are rolled over within the super system.
“This is the way the rollover of death benefits for dependants was intended to work and brings it back into being a smooth, functional and fair system during the tough times of dealing with the death of a family member,” he said.