The author of a new super_annuation book is calling for a rethink on binding death benefits to correct taxation abnormalities.
Peter Bishell said binding death benefit nominations could result in adult depend_ents of a superannuation member paying 15 per cent tax on the sum being passed on from the fund.
“If the member is fore_warned of their death, they can withdraw their super_annuation and pass it onto their children with no tax being paid,” he said. “It is very hard to justify this tax on moral grounds.
“The adult children of a member who dies unex_pectedly will pay tax while those same children would pay no tax if the superan_nuation member knew their time was up.”
Bishell is proposing a ‘death benefit rollover’ pro_vision that would enable a certain amount of the mem_ber’s funds to be transferred to adult children tax free.
“Today, there are many adult children of members who are in their 40s and 50s and don’t have big superannuation balances for retirement,” he said.
“When the parents die, they are caught in a no-man’s land of having little funds for their retirement but being taxed on the funds that will help them later in life.”
Bishell accepts that the rollover benefit could not be given to all children and would have to be tailored for older offspring to help close the superannuation generation gap if they don’t have the chance to build big retirement balances.
“The rollover would see funds kept in superannua_tion and help people with retirement,” he said.
“It is a long-term solution to what will be the problem of people not having big enough retirement balances due to joining the superan_nuation scheme late in life.”
Bishell said the average older male superannuation account balance is about $130,000 and the rollover benefit would allow a figure of up to $500,000 to be moved tax free.
The problem of passing funds onto to adult chil_dren can be particularly problematic in self-man_aged superannuation funds, he said.
“If the fund has the fam_ily’s business property as a significant asset and a member dies suddenly, it would have to be sold to meet the binding death benefit nomination,” Bishell said.
“The funds from the sale would be needed to pay the tax on the benefit and this would create a lot of diffi_culties for the members of the fund.”
According to Bishell, the proposed rollover would enable the fund to keep the building and not spend con_siderable sums on selling the property, he said.
