Contributions, Death benefits

Call for budget to address four key issues

death benefit lump sums

An industry body has made a call to change the laws governing lump sum death benefit payments and unused concessional contributions caps.

Tax and Super Australia has highlighted four issues in its 2022/23 pre-budget submission that it would like addressed, with an emphasis on death benefit lump sums and the protection of unused concessional contribution caps.

With regard to death benefits, current superannuation law dictates that if the retirement savings of a deceased person are to be paid out in a lump sum, the process must be limited to two methods. One being the payment of a single lump sum, and the other being the payment of an interim amount, that cannot be greater than the value of the benefit at the time of the member’s death, and a final lump sum.

Tax and Super Australia has proposed this law be changed as it feels it does not take into account the unique circumstances of SMSFs.

“The issue with [the legislation] is that it’s not really practical for SMSFs that need to make more than one death benefit lump sum [distribution], particularly if there are in-specie payments to be made out, such as certain parcels of shares and certain investments,” Tax and Super Australia head of superannuation Natasha Panagis told attendees of a recent webinar the industry body hosted.

“[So] we’ve asked [the government] to allow multiple death benefit lump sums to [be paid] as soon as practicable.”

The submission also called for superannuation guarantee (SG) payments to be properly assigned to the income year in which they are related. Currently, SG payments are allocated to an individual’s concessional contributions cap in the financial year in which they are received, creating a mismatch should SG amounts be delayed, pushing them into the following fiscal period.

“[This recommendation has been made] mainly for the carry-forward arrangement,” Panagis noted.

Specifically, Tax and Super Australia stated in the proposal that “there should be a mechanism in place to allow for an adjustment to an individual’s unused carry-forward concessional contribution cap where the cap is reduced or extinguished due to the receipt of superannuation guarantee amounts that relate to an earlier year”.

The industry body also requested the indexation of the general transfer balance cap, triggered by current rates of inflation, be retained and for social security deeming rates to remain frozen at their current rates until 30 June 2024.

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