Cause and effect — Hand schematically explaining cause and effect with chalk

Claim Benefit Concern in Super Tax Change

March 7, 2023

Death or TPD benefits paid into a superannuation account may trigger an additional taxation impost on the super claimant or their estate.

This possible outcome has been flagged by AIA’s National Technical Manager, Ben Martin, following his team’s initial analysis of the Government’s proposal to levy an additional 15% tax on super fund balances in excess of $3 million.

In what he classifies as a potentially unintended consequence of the Government’s proposal, Martin provides an example in which a super fund member has a total super balance (TSB) of $2 million as at 1 July 2025. 11 months later, on 1 June 2026, the member’s super fund account receives a deposit of $2m, being the proceeds of a Life or TPD claim event, resulting in a TSB of $4 million as at 30 June 2026:

AIA Australia’s Ben Martin …concerns with possible unintended consequences for tax treatment of claim benefits under proposed new super rules

“Based on the proposal and information available to us at this point, the super fund member or the executor of the member’s estate would be levied with an additional $75,000 tax impost,” says Martin. “That’s because the formula for determining the additional 15% tax liability does not specifically carve out proceeds from super-owned insurance policies.”

Martin further notes this additional $75,000 tax impost would be levied in addition to the tax already being paid by an adult independent child in receipt of a superannuation death benefit. “This can be as high as 32% on the taxable component of the payment,” says Martin, “…or, for TPD lump sum benefits, on top of the 22% tax levied on the taxable component if under preservation age at time of receipt.”

…the extra …taxation impost does not represent an outcome that the original intent of the measure is designed to address

Martin and his colleagues caution that until the draft regulations are released, these concerns may ultimately prove to have no basis. In the example he outlines, Martin contends that, arguably, the extra $75,000 taxation impost does not represent an outcome that the original intent of the measure is designed to address.

Details on the government’s consultation process will be released shortly.