SMSF advisers should be informing fund members that a death tax resides within their fund and may be levied on any adult who is a beneficiary of the fund.
Addressing attendees at the Chartered Accountants Australia and New Zealand (CAANZ) National SMSF Conference 2019 in Sydney this week, CAANZ senior tax and superannuation trainer James McPhedran said the threat of a death tax was raised at the last federal election, but it already existed in Australia within the superannuation system.
“We already have a death tax in Australia and it is the tax on the taxable component in superannuation that on death goes to adult children,” McPhedran said, adding advisers and accountants should be informing clients of this possibility.
“If you are not in the habit of communicating the presence of the death tax and the amount of the family exposure to it, you should start doing so.”
He pointed to a case study where an SMSF had two members and a $3.3 million taxable component between them, which would result in a $620,000 death tax if the benefits went directly from the fund to the adult children of the members.
The sum was the equivalent of a 15 per cent tax plus Medicare and he said he had spoken with two accountants this year who have had adult children criticise them for not telling their parents to remove money from an SMSF before passing away.
“Your relationship is usually with the parents who have the fund and it maybe with the kids of the client, but this is something that needs to be on the table. There is a death tax, it is in superannuation only, but not in company or trust structures,” he said.
“If you have not had an SMSF client’s children complain about death tax, it is just a matter of time, so it is something to be talking about with clients from day one as it is hard to talk about on their death bed.”