If the superannuation is held in a self-managed superannuation fund (“SMSF”), the answer is YES, but within carefully considered parameters.

Generally, when a person dies their superannuation death benefits must be cashed out as a lump sum or a series of lump sums as soon as is practicable.

However, if a member of a SMSF dies, and at the time of death the person with a disability is in a relationship of interdependency with the member, is over the age of 18 years, and has a disability as defined in section 8 of the Disability Services Act 1986 (Cth) (see previous article), the death benefits may be paid to the person with the disability as a pension (“income stream benefit”) or annuity, (Reg 6.21 Superannuation Industry (Supervision) Regulations 1994 (Cth)).

The income stream benefit could continue until the annuity or pension is commuted, or the term of the pension expires.

If the member is over the age of 60 years when they die, or the recipient of the superannuation is over the age of 60 years when they receive the benefit, the income stream benefit is tax free, (s.302.65 ITAA 97). Further, a tax offset of 10% applies to the “element untaxed in the fund” of the superannuation income stream benefit, (s.302.85 ITAA 97)

If the member is under the age of 60 years when they die, or the recipient of the superannuation is under the age of 60 years when they receive the benefit, the “tax free component” of the income stream benefit is not assessable as income and not exempt income, (s.302.70 ITAA 97). Further, a tax offset of 15% applies to the “taxable component” of the superannuation income stream benefit, (s.302.75 ITAA 97)

If you are wanting to establish a pension for a dependent with a disability, you should obtain specialist taxation, financial planning and superannuation advice. Duncan legal is available to work collaboratively with your team of specialist advisors.

If you would like further information or to discuss your personal situation, please get in touch to arrange a confidential chat with Margaret.