A sector technical specialist has suggested three layers of ‘death taxes’ now effectively exist, but also some SMSF strategies can allow individuals to reduce the liabilities they might be facing when a person dies.
“There are three layers of death tax, that aren’t called death tax, but they exist now and that is tax on the sale of assets inside the fund, that is anywhere between 0 and 15 per cent, then you’ve got tax to the non-beneficiary, that’s PAYG (pay-as-you-go) on the non-beneficiary on the taxable component, and then you’ve got Div 296,” Smarter SMSF education and technical manager Tim Miller told attendees of a recent SuperGuardian webinar.
“So you have to look at which of those taxes you can eradicate and if you’ve got [a total super balance of] more than $3 million, you can’t eradicate Div 296 without taking money out [of the SMSF] and potentially creating a tax liability elsewhere.
“But, subject to when you start a pension, you can eradicate a lot of 0 to 15 [per cent tax] and bring it closer to 0 by being more in pension phase than accumulation and by using [a recontribution strategy] you can offset some of that PAYG piece.
“So you can actually strategically work your way through some of these [strategies] to minimise those death taxes even though [they don’t officially] exist.”
To this end, SuperGuardian chief executive Josh Williams noted withdrawal and recontribution strategies are now more relevant for SMSF members.
“[They give individuals] the benefit of reducing the taxable component in the fund, increasing the tax-free component, but also [the advantage] of rebalancing [member benefits] in light of the transfer balance cap and now Division 296,” Williams said.
“So there has never been [a better reason] for giving [that strategy] some thought.”