Anti-detriment payments can make all the difference
By
Wouter Klijn Fri 25 Jul 2008
Transferring super contributions to a non-taxable segment will not always help the receiver of a death benefit.
A superannuation member's spouse or child under the age of 18 could receive a higher death benefit, if contributions are left as a taxable component due to anti-detriment payments, ING national manager technical services Rudy Haddad said yesterday.
Members who turn 60 qualify for tax-free payments from their superannuation savings. As such a new, popular strategy is to cash-out contributions and put the money back in as a personal after-tax contribution.
The logic is that when the member dies, the death benefit will be tax-free when it is paid out as a lump sum amount.
But Haddad said it depends on who receives the death benefit as to whether they will actually be better off by the transaction.
"Some members will do themselves a disservice by evoking this strategy," he said.
The Government introduced anti-detriment payments in 1988, to refund taxation paid on contributions. They apply only to lump sum super death benefits paid to a spouse, ex-spouse or children of any age.
The height of these payments is determined by the taxable component of the built-up capital. The larger this component, the higher the payment will be.
As spouses and children under 18 are dependants, they will not have to pay tax over death benefits, while they are still eligible to receive the anti-detriment payment. Therefore, leaving the built-up capital as a taxable amount could result in a lump sum more than 17 per cent higher than if the contributions had been transferred.
However, not all super funds offer anti-detriment payments, Haddad said.
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