Good news for superannuation pensions

The Government released their Mid-Year Economic and Fiscal Outlook (MYEFO) this week. A number of changes were announced, however, the most notable was a final decision on when a superannuation pension ceases in the event of death.

This has been an ongoing issue since July 2011 when the ATO released draft ruling TR 2011/D3. The draft ruling stated a superannuation pension would cease upon the death of the fund member unless there was a reversionary beneficiary nominated (a reversionary nomination allows the deceased member’s pension to revert to the beneficiary, meaning the pension doesn’t cease).

The draft ruling brought about much criticism within the superannuation sector. This was because the majority of superannuation funds weren’t equipped to support reversionary beneficiary arrangements. Additionally, where a reversionary beneficiary didn’t exist, a fund member’s pension was deemed to cease upon death, meaning that pension assets would be subject to capital gains tax upon disposal to beneficiaries.

Not anymore.

Effective 1 July 2012, the Government will amend legislation to allow superannuation pension assets to maintain their tax-free status after the death of a member. This appears to indicate that a reversionary beneficiary is no longer required to avoid a capital gains tax liability when pension assets are sold and distributed to beneficiaries.

However, as is often the case when the Government announces good news, there is bad news as well.

Members of self-managed super funds (SMSF’s) are the losers of the MYEFO as the Government has announced it will increase the annual SMSF Supervisory Levy to $259, an increase of more than 35% and the largest increase since the Levy was introduced. The Levy is compulsory for all SMSF’s and goes towards the cost of regulating the SMSF sector. The increase will take effect from 1 July 2013 and is projected to increase government revenues by more than $300m over the period to 30 June 2016.

As always, we can’t have our cake and eat it too.


This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax advice prior to acting on this information.Opinions constitute our judgement at the time of issue and are subject to change. Financial Planning Expert Pty Ltd does not give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.
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