It’s happened to everybody. It might be the awesome café you discover on the day it’s shutting down. Or the gift voucher that you find in your sock draw the week after it expires.
And so it is with the anti-detriment payment—many people are only finding out it exists on the brink of its demise. It’s being scrapped from 1 July 2017 as part of the Government’s superannuation reform package.
Most people are aware that they are taxed on the contributions that they and/or their employer make to their super fund. Contributions tax is levied at 15% and has been for nearly 30 years. As with all concessional tax rates, the government’s ‘generosity’ is not limitless. Contributions only attract the concessional rate until they reach $30,000 for the 2016/17 financial year for people under 50 years old and $35,000 for all others.
What a lot of people don’t know is that all of the contributions tax that they have paid at the concessional rate throughout their working life may be refundable when they die. All of it. And although 15% can seem pretty negligible at first glance, it adds up to a tidy sum for people that have been working since the government started taxing super contributions in 1988.
The rationale for the anti-detriment payment is complex and arguably flawed. It is a strange creature that only exists because, in most cases, super funds are able to claim the payment as a deduction on their assessable income. Although not all retail and industry funds offer the anti-detriment payment, most do, and it can also be built in to the Deed of a self-managed super fund.
So what’s the catch? There’s a few things to keep in mind:
Look to the governing rules of your fund to find out whether your fund will make the anti-detriment payment;
- The anti-detriment payment is only available where the death benefit is being paid as a lump sum (with some exceptions);
- The payment is made by the super fund at the request of the nominee—a super fund will rarely offer it unless asked;
- Eligible nominees are limited to the trustee of the member’s estate or a dependant for the purposes of superannuation law (the member’s spouse, former spouse or child);
- A member can use his or her Will as a vehicle to distribute the death benefit and associated anti-detriment payment to an eligible dependant;
- The payment is only available for the taxable portion of the benefit (on which the 15% contributions tax was paid by the member);
- Although a member’s adult children are dependants for the purposes of superannuation law, they are not dependants for the purposes of taxation law and will therefore have to pay tax on the death benefit and anti-detriment payment.
Even if you don’t plan to die before 1 July 2017, it’s never a bad time to consider your estate plan particularly if you are going through a separation.
Tom Mainwaring – Farrar Gesini Dunn Melbourne Office