A superannuation anti-detriment payment is a lump sum amount that is paid in addition to the account balance of the deceased member (section 295-485 ITAA 1997).
It is only payable where the death benefit is being paid out as a lump sum and represents a refund of the 15% contributions tax levied against the deceased member’s superannuation entitlements during their lifetime. This may increase the superannuation death benefit by up to 17.647% and is known as an anti-detriment payment or tax saving amount.
The superannuation anti-detriment payment can only be made to:
- a spouse,
- the former spouse, or
- child (including an adult child) of the deceased member – either directly from the superannuation fund or via the estate.
Where the death benefit is being paid to a spouse, ex-spouse or minor child, the entire benefit, including the anti-detriment payment, will be tax-free as these beneficiaries are dependents for tax purposes and always receive a superannuation death benefit tax-free.
Where the anti-detriment payment is made to an adult child who was not financially dependent on the deceased, they will be taxed on the lump sum death benefit’s taxable component. This rate may be from 15% for the taxed element of the taxed component, to 30% for the untaxed element of the taxed component (plus Medicare Levy).
Anti-detriment payments are not available in ‘insurance only’ superannuation funds where the entire superannuation contributions is used to pay premiums which are tax deductible. As no contribution tax is ever paid, no refund of anti-detriment payment is available.
One of the issues for superannuation funds is that they must pay the benefit before they claim a tax deduction against future taxable income.
When a superannuation fund may not offer an anti-detriment payment
There are some instances when it will not be suitable for a fund to make an anti-detriment payment:
- the fund is not expected to generate sufficient taxable income in future years to use up the anti-detriment created tax deduction (e.g. all members are in pension phase – no tax is payable)
- the fund has only one member, there are no reserves and no new members can be admitted. In this case, the anti-detriment is simply not possible
- potential anti-detriment payments may also be reduced or eliminated in situations where a client adopts a re-contribution strategy to another superannuation fund. A re-contribution strategy involves a superannuation fund member who is over 55 withdrawing benefits tax-free and then re-contributing them back to a superannuation fund as non-concessional superannuation contributions.
Case study for superannuation fund anti-detriment payments
Trevor (born 1 February 1950) dies on 1 December 2007, aged 57. His service period began on 1 January 1989, and he has a superannuation death benefit of $380,000 with no insurance component. Trevor is survived by his wife, Tina, aged 57, who is the nominated beneficiary. Trevor’s super death benefit lump sum may be increased by an estimated anti-detriment payment of $67,059.
Superannuation funds & anti-detriment payments
Anti-detriment payments are a great boost to a beneficiary’s death benefit. Unfortunately, there is no legal requirement for superannuation funds to make anti-detriment payments. Some superannuation funds pay this additional benefit automatically, other superannuation funds won’t make the payments unless requested, and there are some who just don’t make these payments at all. If the trust deed of the superannuation fund does not authorise payment, it cannot occur.