Lump Sum Superannuation Death Benefits – Eligible Beneficiaries & Taxation Consequences

Eligible Beneficiaries

For a binding death benefit nomination to be valid, an eligible beneficiary must be nominated.  To be eligible, a beneficiary must be either your Estate or meet the definition of a Dependant as defined under the Superannuation Industry (Supervision) Act 1993 Cth.  Section 10 of the Act defines a Dependant as including ‘… the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship’.

In the absence of a valid binding death benefit nomination, the trustee of the superannuation fund will use its discretion as to the recipient of the superannuation death benefits. If the death benefit is paid to the Estate, the benefits will be dealt with in accordance with the terms of the Will.  Clearly it is essential in this event that you have a current Will.

Taxation of Benefits

Lump sum superannuation death benefits are typically made up of a tax-free component and a taxable component.  The tax-free component of a lump sum death benefit is always tax-free in the hands of the beneficiary.  The manner in which the taxable component is treated is determined by the application of the Death Benefits Dependant definition as found in the Income Tax Assessment Act 1997 Cth.  A death benefits dependant is defined under section 302-195 as ‘the deceased person‘s spouse or former spouse; or the deceased person‘s child, aged less than 18; or any other person with whom the deceased person had an interdependency relationship under section 302-200 just before he or she died; or any other person who was a dependant of the deceased person just before he or she died’.  The taxable component of a lump sum death benefit will be tax-free in the hands of a Death Benefits Dependant, however, there are taxation consequences for those beneficiaries who do not meet this definition.


To ensure that you have valid binding death benefit nominations in place, please contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.

The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it.  It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.