THE 15% TAX TRAP ON SUPERANNUATION DISTRIBUTIONS (Why you might need a “Conflict of Interest” clause in your EPOA)

After death, any money that the deceased was still holding in their Superannuation Fund must be distributed out. According to the usual Superannuation rules, the payment of this money is made in line with written instructions* and is typically directed to the deceased’s surviving spouse and/or family members. Under tax laws however, these payments will be taxed at the rate of 15%** if made to anyone other than the member themselves or a “dependant”.  Because dependants are defined as only a surviving legal spouse or infant children, any distribution made to other persons such as the deceased’s adult children is susceptible to the 15% tax bill. Considering Superannuation account balances are typically well over $100,000 this tax bill can be very substantial.

If however, the member had an Enduring Power of Attorney in place before they passed away, then usually, the medical issues which are expected to take the person’s life, will enable their Attorneys to withdraw the entirety of the member’s Superannuation account and pull the money down into an account in the member’s personal name prior to the date of their death. This payment into the member’s own account is tax free and from here, the money can then be distributed out to the deceased’s family pursuant to the terms of their Will again, tax free.

Importantly however, this course of action, is only available if the member had a “Conflict of Interest” clause written into their Power of Attorney.  In order to work, the “Conflict of Interest” clause does need special drafting and of course without a Power of Attorney at all, the money transfers before death cannot occur at all.

* commonly called a Binding Death Benefit Nomination.

** tax is calculated by a formula which firstly exempts any tax component of the accumulated member’s account (the tax component can be found in the tax returns) and then factors in the period of time between the date of death and the member’s permissible date of retirement. 

Michael Zande is a Queensland Law Society Accredited Family Law Specialist with over 30 years’ experience in the field. He is the principal at Zande Law Solicitors, Suite 7, Norwinn Centre, 15 Discovery Drive, North Lakes.  To contact Michael for advice, phone 3385 0999.

The information in this article is merely a guide and is not a full explanation of the law.  This firm cannot take responsibility for any action readers take based on this information.  When making decisions that could affect your legal rights, please contact us for professional advice.