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Finally some good news – Tax free SMSF earnings after death

Glenn Fairbairn
Director/Private Client Adviser
26 Oct 2012

Following the release of draft taxation ruling TR 2011/D3 in July last year there had been a lot of debate and concern within SMSF circles regarding the potential capital gains tax payable by a SMSF upon the death of a member. 

The draft ruling reinforced the Tax Commissioner’s view that the tax exemption for superannuation funds paying a pension would cease upon the death of a member, unless a dependent beneficiary was automatically entitled to the pension

What did this mean for the beneficiaries of the deceased?

Upon the death of a member the superannuation fund was deemed to revert to ‘accumulation phase’ and earnings were taxed at 15%. Therefore when the fund assets were sold to enable death benefits to be paid to beneficiaries, any capital gains realized from these sales was subject to capital gains tax.

But finally some welcome news…

In its mid-year economic and fiscal outlook the government announced it would amend the law to allow the tax exemption for superannuation fund earnings to continue following the death of a fund member until the deceased member’s benefits have been paid out of the fund.

This change will benefit the beneficiaries of deceased estates by allowing superannuation fund assets to be sold on a tax-free basis to fund the payment of death benefits.

This is excellent news for the thousands of SMSFs in the pension phase and has the potential to save beneficiaries a significant amount in tax.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.