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Re: Superannuation Death Benefit paid to a Non Resident

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Hi team,

 

I'm seeking some assistance as I cannot pin point what will happen for my friend in the following situation. 

 

His son was on a working holiday and unfortunately passed away. He had superannuation ($30,000) with built in default life insurance ($200,000). My friend has been approved by the trustee’s and they will release funds to him as a non dependant as a taxed benefit.

I’m trying to figure out the tax treatment of these funds as he is a non resident residing in the Republic of Ireland – he’s applied for a TFN for a non resident.

 

I can see that there is a potential for no tax payed but it's dependent upon the tax treaty with Ireland but there is no mention as to how they treat these funds – please help!!

 

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Devotee

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Hi @LiamPriceHSW 

 

The Superannuation legislation does not discriminate against beneficiaries living overseas to those living in Australia. Where a member passes away and did not make a valid Binding Death Nomination on their account, their super fund would generally either pay their death benefit their deceased estate or to an appropriate beneficiary at the superfund trustee's discretion. It appears in this case, the trustee has chosen the latter.

 

The Income Tax (Assessment) Act 1997 provides the tax treatment of superannuation death benefit paid to a beneficiary. The rate of tax applicable is determined purely by the "tax dependancy" of the beneficiary. It does not take into account where the beneficiary was located at the time of death. If the father is not a "tax dependant" of the deceased, he would be liable for 15% (+2% Medicare Levy therefore 17% altogether) tax on the taxable component of the super lump sum, 30% (+2% Medicare Levy therefore 32% altogether) on the "untaxed element" of the taxable component if at all (these you dont normally come across unless you have a defined benefit or a constitutionally protected fund), and nil tax on the tax-free component. Tax will be withheld by the superfund trustee. 

 

Whether or not this death benefit will also be taxed in Ireland is a matter of tax law enforceable in the Republic of Ireland. As you have correctly pointed out, the existing Double Tax Agreement doesn't seem to contain articles to address circumstances like this. Therefore, it would possibly come down to their tax law within the juristiction. Client will need to seek professional tax advice both in Australia and the Republic of Ireland for clarification.

 

Hope this Helps

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Devotee

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Hi @LiamPriceHSW 

 

The Superannuation legislation does not discriminate against beneficiaries living overseas to those living in Australia. Where a member passes away and did not make a valid Binding Death Nomination on their account, their super fund would generally either pay their death benefit their deceased estate or to an appropriate beneficiary at the superfund trustee's discretion. It appears in this case, the trustee has chosen the latter.

 

The Income Tax (Assessment) Act 1997 provides the tax treatment of superannuation death benefit paid to a beneficiary. The rate of tax applicable is determined purely by the "tax dependancy" of the beneficiary. It does not take into account where the beneficiary was located at the time of death. If the father is not a "tax dependant" of the deceased, he would be liable for 15% (+2% Medicare Levy therefore 17% altogether) tax on the taxable component of the super lump sum, 30% (+2% Medicare Levy therefore 32% altogether) on the "untaxed element" of the taxable component if at all (these you dont normally come across unless you have a defined benefit or a constitutionally protected fund), and nil tax on the tax-free component. Tax will be withheld by the superfund trustee. 

 

Whether or not this death benefit will also be taxed in Ireland is a matter of tax law enforceable in the Republic of Ireland. As you have correctly pointed out, the existing Double Tax Agreement doesn't seem to contain articles to address circumstances like this. Therefore, it would possibly come down to their tax law within the juristiction. Client will need to seek professional tax advice both in Australia and the Republic of Ireland for clarification.

 

Hope this Helps

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