Who can I nominate as my Superannuation Beneficiary?

In our last article, we discussed the types of beneficiary nominations available to superannuation investors. If you missed our last article, check it out HERE.

Choosing the right beneficiary nomination to suit your needs will depend on your personal circumstances, family structure and estate planning goals. You should consider:

• Who you want to benefit

• The tax implication for different beneficiaries

• Flexibility v. certainty

• Whether you want the benefit paid as a lump-sum or income stream.

Superannuation legislation also sets out which individuals are eligible to receive a superannuation death benefit directly from a superannuation fund. These individuals are referred to as dependents in the Superannuation Industry (Supervision) Act 1993 (SIS Act).  There is also a separate definition of 'dependant' under tax law which affects how the benefit is taxed.

Eligible beneficiaries include (SIS Dependant):

• Spouse or De Facto partners - This can include same-sex partners and there is no minimum duration of the relationship.

• Children of the deceased - including biological, adopted, step-children and children of a spouse or de facto partner.

  • There is no age restriction under superannuation law, but tax treatment varies with age.

• Persons in an Interdependency Relationship - Typically including those in a close personal relationship, living together and providing financial, domestic and personal support to each other.

• Legal Personal Representative - if no eligible dependant is nominated, the benefit can be paid to your estate via the executor or administrator.

Tax Dependants

As we noted above, the concept of a tax dependant is important when considering the tax treatment of your superannuation benefit.

For tax purposes, a dependant includes:

• Spouse or de facto partner (including former spouses

• Children under 18

• Individuals in an interdependency relationship

• A financial dependent of the deceased.

The key differences between an eligible beneficiary and a tax dependant include:

• Adult children are eligible beneficiaries but are not tax dependants unless financially dependant or disabled.

• Former spouses are tax dependants, but are not SIS dependants, meaning they can receive a tax concession, but not direct superannuation payments unless directed via your estate.

Taxation Treatment of Superannuation Beneficiary Nominations

The tax treatment of superannuation death benefits depend on two main factors:

1. The relationship between the deceased and the beneficiary (i.e. whether the beneficiary is a tax dependant or non-tax dependant)

2. The components of the superannuation benefit (tax-free, taxable taxed, and taxable untaxed).

The tax treatment by beneficiary type can best be described as follows:

Component	Tax Dependant	Non-Tax Dependant
Tax-Free Component	Tax-Free	Tax-Free
Taxable (Taxed)	Tax-Free	Taxed at 15% + 2% Medicare Levy (17%)
Taxable (Untaxed)	Tax-Free	Taxed at 30% + 2% Medicare Levy (32%)

Keep an eye out for our next article where we discuss common scenarios and ways to reduce tax on the benefit paid to your preferred beneficiaries.

If you have any questions on the eligibility of your preferred beneficiary and the tax treatment that may apply to your beneficiary, please don't hesitate to contact us.