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Re: Consolidating 2 child death benefit pensions

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A 19yo with two seperate child death benefit super pensions. Both worth much less than $1.6M.

Both sit with the same super trustee.

I have sighted the orginal rollover benefit statements and there is no untaxed element in either child pension account.

I understand there is nothing preventing the consolidation of both child death benefit pensions into one child death benefit pension as the child is a tax dependant and we are looking to consolidate with the same trustee. Is that correct?

Is it also correct that as the deceased parent did not have a transfer balance account at the time of their death as they had not commenced a retirement phase income stream, that the child's TBC is the same as the general transfer balance cap as the child was the sole beneficiary?

Related to this, I understand that at 25 or when the funds are exhausted, that the child's TBA ceases. So is it correct to assume that the child's TBA at 25 (upon cashing out) goes to zero thus not creating any adverse impact on saving into super post age 25 ?  But what about their TBC beyond this point also?

Also at age 25, when the funds have to be communted what is the tax treatment of the taxable component?

Are there any other tax considerations that I need to be aware of with consolidating two child death benefit pensions into one?

 

 

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Hi @StuartW

 

Welcome to our Community.

 

The rules allow the consolidation of two super death benefit income streams into one, provided the new income stream is a death benefit income stream. This can be within the same super fund (as per your scenario) or with a different super fund.

 

For more information, refer to the death benefits and reversionary income streams section of the super changes – frequently asked questions page on our website.

 

Of course, while the legislation allows this, it can't be done if the trust deed and/or rules of the fund prevent it. In turn, we recommend that you check to ensure that it can be done.

 

If you can consolidate the income streams, you will need to work out the components (tax-free and taxable) of the new income stream and ensure that the pro-rata minimum payments are made for the old income streams and the new one.

 

For more information about the components and minimum payment requirements, refer to the calculating components of a super benefit and income stream (pension) pages.

 

You will also need to ensure that the appropriate tax is withheld (if applicable). The super death benefits page provides information about the tax rates while the PAYG withholding obligations provides information about withholding the tax.

 

There are special provisions for how the transfer balance cap is worked out when a child recipient receives a death benefit income stream. Child recipients include children between 18 and 25 years old who were financially dependent on the deceased.

 

For more information about how it works, you can check out the child recipients of a death benefit income stream page on our website.

 

When the child is the sole beneficiary of the super interest for a parent that didn't have a transfer balance account at the time of their death (e.g. they died before they were in retirement phase), their cap increment is equal to the general transfer balance cap.

 

Unless the child recipient has a permanent disability, upon turning 25 they are required to cash out all death benefit income streams and withdraw the capital from the super system. At this time, their transfer balance account and modified transfer balance cap will cease (unless the capital has already been exhausted).

 

What this means is that the child recipient's transfer balance account effectively goes to zero.

 

If they subsequently start receiving another super income stream (other than as a child recipient), they will start a new transfer balance account. The new transfer balance cap is based on the general transfer balance cap at that time.

 

The super fund is required to stop paying the income stream on or before the date the child turns 25 years old and pay the remaining benefit as a tax free lump sum.

 

This is explained on the paying superannuation death benefits page of our website. Refer to the income stream death benefits section. While this information is found in the APRA-regulated funds section, it also applies to self-managed super funds (SMSFs).

 

Hope this helps.

 

Thanks,

 

ChrisR

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ATO Certified Response

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Hi @StuartW

 

Welcome to our Community.

 

The rules allow the consolidation of two super death benefit income streams into one, provided the new income stream is a death benefit income stream. This can be within the same super fund (as per your scenario) or with a different super fund.

 

For more information, refer to the death benefits and reversionary income streams section of the super changes – frequently asked questions page on our website.

 

Of course, while the legislation allows this, it can't be done if the trust deed and/or rules of the fund prevent it. In turn, we recommend that you check to ensure that it can be done.

 

If you can consolidate the income streams, you will need to work out the components (tax-free and taxable) of the new income stream and ensure that the pro-rata minimum payments are made for the old income streams and the new one.

 

For more information about the components and minimum payment requirements, refer to the calculating components of a super benefit and income stream (pension) pages.

 

You will also need to ensure that the appropriate tax is withheld (if applicable). The super death benefits page provides information about the tax rates while the PAYG withholding obligations provides information about withholding the tax.

 

There are special provisions for how the transfer balance cap is worked out when a child recipient receives a death benefit income stream. Child recipients include children between 18 and 25 years old who were financially dependent on the deceased.

 

For more information about how it works, you can check out the child recipients of a death benefit income stream page on our website.

 

When the child is the sole beneficiary of the super interest for a parent that didn't have a transfer balance account at the time of their death (e.g. they died before they were in retirement phase), their cap increment is equal to the general transfer balance cap.

 

Unless the child recipient has a permanent disability, upon turning 25 they are required to cash out all death benefit income streams and withdraw the capital from the super system. At this time, their transfer balance account and modified transfer balance cap will cease (unless the capital has already been exhausted).

 

What this means is that the child recipient's transfer balance account effectively goes to zero.

 

If they subsequently start receiving another super income stream (other than as a child recipient), they will start a new transfer balance account. The new transfer balance cap is based on the general transfer balance cap at that time.

 

The super fund is required to stop paying the income stream on or before the date the child turns 25 years old and pay the remaining benefit as a tax free lump sum.

 

This is explained on the paying superannuation death benefits page of our website. Refer to the income stream death benefits section. While this information is found in the APRA-regulated funds section, it also applies to self-managed super funds (SMSFs).

 

Hope this helps.

 

Thanks,

 

ChrisR