Anti-detriment is a powerful yet little known tax provision that can increase super death benefits.
What is Anti Detriment?
An anti-detriment payment is an amount paid by your super fund on your death as compensation for the tax paid on your contributions. An anti-detriment payment is only available on payment of a lump sum death benefit. The anti-detriment payment effectively increases the amount of the lump sum benefit available on death so the lump sum payment is the amount that would have been paid if contributions to super were not included in the assessable income of the fund.
In calculating the anti-detriment amount, the trustee of the fund is also able to take into account the earnings that would have accrued on the amount of tax paid on the contributions if those contributions had not been subject to tax.
When is an anti-detriment payment available?
The anti-detriment provisions will only apply where a lump sum death benefit is paid in favour of your spouse, former spouse or children (including an adult child). This includes payments made to the trustees of the estate of a deceased member to the extent those people will benefit. The anti-detriment provisions allow the use of Superannuation Proceeds Trusts.
Anti-detriment payments can potentially be made from Self Managed Superannuation Funds (SMSF) and public offer funds, provided the trust deed governing the fund allows for them to be made. There is no legal obligation on the trustee of a fund to make an anti-detriment payment. Therefore you will find some public offer funds do not offer them and others won't make an anti-detriment payment unless specifically requested to do so.
As of 1 July 2017, anti-detriment payments are available only to individuals who satisfy the Transitional Rules (see below).
A two year transition rule applies from 1 July 2017 to 30 June 2019. During this period, trustees are able to claim a tax deduction where they pay lump sum superannuation death benefits for members who died prior to 1 July 2017. However, from 1 July 2019, no tax deductions can be claimed for anti-detriment payments, irrespective of whether the member died before 1 July 2017.
There are two methods of calculating anti-detriment payments. They are:
The Audit Method calculates the exact amount that would have been paid if contributions to super were not included in the assessable income of the fund.
Applies a percentage to the taxable component of the lump sum death benefit. The percentage is 17.647% if the service period commenced after 30 June 1988. The percentage is around 13% if the service period commenced before 30 June 1983. The percentage is between the 2 rates for service periods commenced between 30 June 1983 and 30 June 1988.
Super funds are entitled to pay the greater of the 2 methods.
Recommendations and issues
- A SMSF may struggle to fund an anti-detriment payment.
- The data used in the audit method cannot be transferred from one fund to another.
- If you are a member of a self managed super fund and have been diagnosed with a critical ailment (i.e. knowledge of a pending death) and you intend to pay a lump sum death benefit in favour of your spouse, former spouse or children it may be best to transfer your super monies to a public offer fund that offers anti-detriment.
- If you do not have a spouse, former spouse or children or don’t intend to pass your wealth on to them and have access to your super, we recommend super re-contribution strategies. Super re-contribution strategies will reduce ‘death tax’.
- Recipients of superannuation pensions from super funds that offer anti-detriment using the audit method should never withdraw all available funds and keep the pension alive no matter how small the pension balance is.
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