It is well known that superannuation withdrawals are tax free once you reach 60 years of age. What is not well known by retirees, is how your superannuation is taxed when it reaches your end beneficiaries.
You may notice on your annual superannuation reporting, there is a taxable component and a tax free component even if you are over the age of 60. These components are what helps determine the tax for your beneficiaries. Contributions from your employer and salary sacrifice contributions to super are considered taxable, as they have tax deducted at 15% upon entry to the superannuation environment. So, the more you salary sacrifice, the higher the tax savings for you – but the increased tax liability for particular beneficiaries who do not qualify as “tax dependents”.
Give on one hand, take away with the other…
There are strategies that we utilise to change these components to minimise this tax to a certain extent or in some cases, eliminate completely.
Some possible strategies to eliminate the tax:
1/ cashing in the super prior to death
2/ undertaking a re-contribution strategy to wash out the taxable components
3/ Investing your super with a fund that offers an anti-detriment facility
Talk to your adviser about your estate plan to minimise unnecessary taxes for your beneficiaries. Sound planning will often involve the children to ensure that tax issues for all beneficiaries are considered with a view towards optimising the transition of wealth to the next generation.