How are superannuation death benefits taxed for dependants vs non-dependants?

When a super fund member dies, their superannuation death benefit can be paid to a tax dependant tax-free or to a non-tax dependant with tax applied to the taxable component.

For tax purposes, dependants include a spouse or de facto spouse, a child under 18, a financial dependant, or someone in an interdependency relationship. When the death benefit is paid to a tax dependant, no tax applies regardless of whether it is paid as a lump sum or income stream.

For non-tax dependants (such as adult children who are financially independent), the taxable component of the death benefit is taxed at 15% plus the 2% Medicare levy (total 17%) for the taxed element, and 30% plus Medicare levy for the untaxed element. The tax-free component (personal after-tax contributions) is always received free of tax by any beneficiary.

Some super funds allow binding death benefit nominations that direct the trustee to pay your super to specific people. Without a valid binding nomination, the trustee has discretion over who receives the benefit. Binding nominations generally expire every three years unless the fund offers non-lapsing versions. Keeping your nomination current is especially important for blended families.