Calculating super lump-sum death benefits

One outcome of the growing popularity of superannuation as a wealth creation vehicle is that more adults will receive death benefits from their parents’ super account/s. This article will look at the treatment of life insurance proceeds included in a super lump sum death benefit payment to non-tax dependants.

Where the proceeds of a term life insurance policy are allocated to a deceased member’s superannuation interest, they will form part of the taxable component of that interest. If a deceased member’s interest is then paid as a lump sum to a tax dependant, the entire payment will be tax free (i.e. non-assessable, non-exempt income). Therefore, the super fund trustee generally will not be required to calculate the tax components or withhold any tax from the payment.

Tax dependants (in relation to the member) are as follows:

  • Spouse (including de facto and same sex)
  • Former spouse1
  • Child under age 18
  • Financial dependant (including financially dependent adult child)
  • Interdependent relation
  • Individual who receives super lump sum death benefit where the deceased died in the line of duty

A super death benefit may be paid directly to a superannuation dependant or to the member’s legal personal representative (LPR). Where a death benefit is paid to a LPR as executor of an estate, no tax is withheld by the trustee of the super fund. To the extent that non-tax dependent beneficiaries will (or could be expected to) benefit from the death benefit, it is subject to the same taxation in the estate as a non-tax dependant would pay had they received the benefit directly. However, Medicare levy does not apply.

Where a fund pays a super death benefit as a lump sum from accumulation phase to a non-tax dependant, the trustee will need to withhold tax from the taxable component as per the following table:

Tax component                                                                               Tax rate

Tax free component                                                                         Nil (non-assessable non-exempt income

Taxable component (taxed element)                                              15%

Taxable component (untaxed element)                                          30%

*Medicare levy is also payable on the amount except where death benefit is paid to the member’s estate.

Where a member’s lump sum death benefit does not include any insurance proceeds, the whole of the taxable component will generally consist of a taxed element. However, where the lump sum death benefit includes insurance proceeds (even $1) and the trustee has claimed, or will claim a deduction for the cost of the insurance premiums (or claim a deduction for a future liability to pay benefits), the taxable component will also include an untaxed element.

The process to calculate the untaxed element is specified in section 307-290 of ITAA 1997 and is as follows:

Step 1 Calculate the taxable component (taxed element) Page 2 of 3



1 An ex-spouse is not recognised as a superannuation dependant. It is unlikely for a super death benefit to be paid to an ex-spouse.


  • Days to retirement = the number of days between the date of death and the deceased’s last retirement date (generally age 65).
  • Service days = is the number of days from the day the member joined the fund (or if a rollover amount was received by the fund with an earlier service period start date, that earlier start date) to the date of death. For an employer sponsored fund, service days may commence when the members employment commenced, if that was prior to the commencement of their fund membership.

Calculating super lump-sum death benefits