Potential death tax for SMSF beneficiaries

The non-dependent children of self-managed superannuation fund (SMSF) holders face potential taxation implications when claiming proceeds from an estate, an unintended consequence of the Federal Government’s Simplified Superannuation reforms.

While many SMSF holders have been taking advantage of the generous taxation provisions contained in the superannuation reforms, in many cases their children will be liable for a tax liability of up to 16.5 per cent when claiming the proceeds.

According to Justin Sadler, national sales and marketing manager of SMSF specialist SuperConcepts: “It’s important for investors to realise that tax could be applicable for their non dependents on the return of any assets within a fund.”

The tax liability could apply to any non-exempt benefits held within SMSFs, but can be minimised if funds are restructured to increase holdings of exempt components before the deadline of June 30, 2007.

“Investors can plan for this by restructuring their funds to ensure they maximise their exempt component, however time is fast running out.

“If the fund is made up of exempt benefits upon the death of the member, the non-dependent children will pay no tax,” Sadler said.

He said at the very least, SMSF-holders should be made aware of the potential taxation implications for beneficiaries so they can inform them.

“It would be unfortunate for an investor’s non-dependants to be burdened with such a tax liability during a period of mourning, and not be prepared.”