Ask Paul: Loophole to let kids inherit my super tax-free?


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Q. My question relates to tax payable on superannuation left to non-dependants when I die.

I am in my early 70s and my daughters are in their 40s, so if all goes well for me in the time I have left they will be over 60 by the time they inherit!

I understand that any superannuation left to non-dependants will be tax free for the tax-paid component and liable for 15% tax on the untaxed component.

paul clitheroe tax super askpaul ask paul advice money show

If I was to withdraw all my super when I judge that I don't have much time left and put it in a bank account outside the umbrella of superannuation, would it then be tax free to my family? - Kevin

A. Yes, Kevin, without knowing your exact super details, that is correct.

My wife Vicki and I chuckle about this as well. We also hope to live for many more years but we have three non-dependant kids.

The challenge, though, is when to pull the money out of super!

We would be mightily annoyed if we pulled it out too early and then paid tax on the investment earnings.

So our call is to leave it there until we have solid medical evidence that death is close.

Quite frankly, if the worst scenario is that we leave it too late and our kids pay 17% tax (15% tax plus Medicare) on our untaxed component, then that is a First World problem.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Click here to email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.
March 25, 2018 4.09pm

Interesting. So what about a married couple aged 59 and 62. If one partner dies and leaves their super to the other, will the surviving partner need to pay tax on it?