Superannuation death benefit tax depends on who receives the money and how it is paid. A lump sum paid to a death benefits dependant, such as a spouse or a child under 18, is tax-free. A non-dependant, such as a financially independent adult child, pays up to 15% plus the Medicare levy on the taxed element and up to 30% plus the Medicare levy on any untaxed element.
The tax-free component of a death benefit is never taxed, whoever receives it. Death benefit pensions can only go to dependants, and how they are taxed depends on the ages of the person who died and the person receiving the payments.
This guide explains who counts as a dependant for tax, the 2026-27 rates, what changes when super is paid to the estate, and a worked example comparing super left to a spouse with super left to an adult son.
Key takeaways
- Lump sum death benefits paid to a tax dependant (spouse, former spouse, child under 18, financial dependant or interdependant) are tax-free.
- Non-dependants pay a maximum of 15% plus the Medicare levy on the taxed element and 30% plus the Medicare levy on the untaxed element. Funds withhold 17% and 32%.
- The tax-free component is not taxed for anyone.
- Adult children are only tax dependants if they were financially dependent on the deceased, or in an interdependency relationship, just before the death.
- Only dependants can receive a death benefit pension. A child’s pension must generally be paid out as a lump sum by age 25 unless the child has a permanent disability.
How does superannuation death benefit tax work?
The table below sets out the main rules for the 2026-27 income year. The rates come from the ATO’s Schedule 12 tax table for super lump sums and its guidance on paying super death benefits.
| Situation | Tax treatment (2026-27) |
|---|---|
| Lump sum to a tax dependant | Tax-free, including any untaxed element. Not included in the dependant’s tax return |
| Lump sum to a non-dependant: tax-free component | Not taxed |
| Lump sum to a non-dependant: taxed element | Maximum 15% plus Medicare levy. The fund withholds 17% |
| Lump sum to a non-dependant: untaxed element | Maximum 30% plus Medicare levy. The fund withholds 32% |
| Paid to the estate | The estate is taxed on the share going to non-dependants at a maximum of 15% (taxed element) and 30% (untaxed element) |
| Death benefit pension | Dependants only. Taxed element is tax-free if the deceased was 60 or older at death, or the recipient is 60 or older |
| Child’s death benefit pension | Must be paid out as a lump sum on or before age 25, unless the child has a permanent disability |
| General transfer balance cap | $2.1 million from 1 July 2026 (was $2 million in 2025-26) |
Who counts as a dependant for tax purposes?
Under section 302-195 of the Income Tax Assessment Act 1997, a death benefits dependant is:
- the deceased’s spouse or de facto partner (of any sex)
- a former spouse or former de facto partner
- a child of the deceased under 18
- a person in an interdependency relationship with the deceased just before they died
- any other person who was financially dependent on the deceased just before they died
The ATO’s super death benefits guide explains that an interdependency relationship needs a close personal relationship where the two people live together and one or both provide financial support, domestic support and personal care. A disability can explain why some of these conditions are not met.
The test looks at the relationship just before the death. An adult child who moves back home or starts relying on the family after the death does not become a dependant for this benefit.
Watch out: super law and tax law use different tests
Super law lets a fund pay a child of any age, so an adult child can be paid directly from the fund. Tax law is narrower. An adult child is only a tax dependant if they were financially dependent on the parent, or in an interdependency relationship, just before the death. Being named in a nomination or a will does not change their tax status.
If an adult child may have been financially dependent, keep evidence such as bank transfers, shared bills and records of regular support. The fund or executor will need it to decide which tax treatment applies.
How much tax does a non-dependant pay?
A death benefit is made up of up to three parts, and each is treated differently for a non-dependant:
- Tax-free component: mainly after-tax (non-concessional) contributions. Not taxed. Our guide to super contribution caps explains how these build up.
- Taxed element: the part of the taxable component that has already been taxed in the fund. Taxed at a maximum of 15% plus the Medicare levy.
- Untaxed element: money that was not taxed in the fund, for example in some public sector schemes or where a fund has claimed deductions for life insurance premiums. Taxed at a maximum of 30% plus the Medicare levy.
When the fund pays a non-dependant directly, it withholds 17% from the taxed element and 32% from the untaxed element under Schedule 12. The beneficiary then includes the payment in their tax return, where a tax offset makes sure the tax does not go above the 15% or 30% cap. The beneficiary’s age does not matter: a non-dependant over 60 is still taxed on a death benefit, unlike their own super.
Ask the fund for the component split before the money is paid. An insurance payout inside super can create a large untaxed element and change the result a lot.
What happens if super is paid to the estate?
A fund can pay a death benefit to the deceased’s legal personal representative (the executor), who then distributes it under the will. Paying through the estate does not remove the tax. The ATO’s guidance says the estate is taxed on the taxable component going to non-dependant beneficiaries at a maximum of 15% for the taxed element and 30% for the untaxed element. The share going to dependants stays tax-free. Our guide to the deceased estate tax return explains how the estate reports its income.
The ATO notes that if you want a non-dependant, such as a sibling, to receive your super, a binding nomination to your legal personal representative makes sure the super follows your will. If the estate also holds property, read our guide to inherited property and capital gains tax.
How are death benefit pensions taxed?
Only a dependant can receive a death benefit as an income stream. A non-dependant must be paid a lump sum. For pensions paid to a dependant, the ATO’s list of amounts you don’t pay tax on says the taxed element of an account-based death benefit pension is tax-free where:
- the deceased was 60 or older at the time of death, or
- the recipient is 60 or older when they receive the payment.
If both were under 60, the taxed element is taxed at the recipient’s marginal rate with a 15% tax offset until the recipient turns 60. Untaxed elements in pensions have different rules and a 10% offset in some cases. Our guide to preservation age and our article on transition to retirement pensions cover how age affects super income streams more generally.
A child can receive a death benefit pension if they are under 18, or under 25 and financially dependent, or have a permanent disability. Unless the child has a permanent disability, the pension must be paid out as a lump sum on or before their 25th birthday.
Tip: check the transfer balance cap
A death benefit pension counts towards the recipient’s transfer balance cap. The general cap is $2.1 million from 1 July 2026, according to the ATO’s transfer balance cap page. For a reversionary pension, the credit arises 12 months after the death, which gives a surviving spouse time to restructure. For a non-reversionary pension, it arises when the beneficiary becomes entitled to the new pension.
Worked example: superannuation death benefit tax for a spouse or an adult son
This example uses the 2026-27 rates to compare the two choices many families face: super going to a surviving spouse, or to an adult child who was not financially dependent.
The facts
- Ravi dies aged 67 with $400,000 in his super accumulation account.
- The fund reports a tax-free component of $60,000 and a taxable component of $340,000, all taxed element.
- His wife Meena is a death benefits dependant. His son Arjun is 36, works full time and was not financially dependent on Ravi.
- The fund pays the benefit directly as a lump sum.
Option 1: paid to his wife (dependant)
- Tax-free component: $60,000, no tax
- Taxed element: $340,000, no tax because Meena is a dependant
- Total tax: $0
- Meena receives: $400,000
Option 2: paid to his adult son (non-dependant)
- Tax-free component: $60,000, no tax
- Taxed element: $340,000 × 15% = $51,000
- Medicare levy: $340,000 × 2% = $6,800
- Total tax: $51,000 + $6,800 = $57,800 (the same as the 17% the fund withholds: $340,000 × 17% = $57,800)
- Arjun receives: $400,000 − $57,800 = $342,200
The difference is $57,800, even though the balance and the fund are the same.
What if part of it is an untaxed element?
Now assume $100,000 of Ravi’s $340,000 taxable component is an untaxed element, for example from an insured benefit where the fund claimed premium deductions. Paid to Arjun:
- Taxed element: $240,000 × 17% = $40,800
- Untaxed element: $100,000 × 32% = $32,000
- Total tax: $40,800 + $32,000 = $72,800
- Arjun receives: $400,000 − $72,800 = $327,200
Paid to Meena, the full $400,000 would still be tax-free. The figures assume Arjun pays the full 2% Medicare levy. His final tax is worked out in his tax return, and our individual tax return team can help with that.
Do binding death benefit nominations change the tax?
No. A nomination decides who gets paid, not how superannuation death benefit tax applies to the payment. A binding nomination can direct the trustee to pay one or more dependants or the legal personal representative, but a non-dependant named through the estate is still taxed as a non-dependant.
Under regulation 6.17A of the SIS Regulations, a binding nomination made under that regulation lapses 3 years after it was signed or last confirmed, unless the member revokes it sooner. Self-managed super funds must follow their trust deed, as the ATO explains on its death of an SMSF member page. If you run an SMSF, our SMSF accounting team and our guide to SMSF accounting in Melbourne can help you check the deed and nominations.
Tip: review nominations after big life changes
Check your nomination after a marriage, separation, new child or when children become financially independent. A nomination that made sense 10 years ago can now send super to someone who will pay tax on it, or lapse without you noticing.
What are the most common mistakes?
- Assuming adult children are tax-free. Being eligible to receive super and being a tax dependant are different tests.
- Assuming the will controls super. Super is paid by the fund trustee, not under the will, unless it is paid to the estate.
- Ignoring the untaxed element. Insurance inside super can add a 30% rate (32% withheld) for non-dependants.
- Thinking the estate route avoids tax. The estate is taxed on the non-dependant share.
- Leaving a lapsed nomination. Check expiry dates and the fund rules.
- Not keeping dependency evidence. The fund or executor needs proof of financial dependency at the time of death.
Planning ahead can reduce the superannuation death benefit tax your family pays. Our tax planning advisers can look at who your super is likely to go to, and our superannuation withdrawal support service helps families claim a death benefit from a fund.
Frequently asked questions
Do adult children pay tax on super death benefits?
Usually, yes. An adult child is a non-dependant unless they were financially dependent on the deceased, or in an interdependency relationship, just before the death. A non-dependant pays no tax on the tax-free component, a maximum of 15% plus the Medicare levy on the taxed element and a maximum of 30% plus the Medicare levy on the untaxed element.
Is a super death benefit paid to a spouse taxed?
No. A spouse, de facto partner or former spouse is a death benefits dependant, so a lump sum death benefit is tax-free and does not go in their tax return. If it is paid as a pension instead, the taxed element is tax-free if either the deceased or the spouse was 60 or older.
How much tax does a super fund withhold from a death benefit?
Nothing for a dependant. For a non-dependant paid directly, the fund withholds 17% from the taxed element and 32% from the untaxed element, which includes the Medicare levy. The tax-free component has no tax withheld.
Can a non-dependant receive a death benefit pension?
No. A non-dependant can only receive a death benefit as a lump sum. A child can receive a pension if they are under 18, under 25 and financially dependent, or have a permanent disability, but it must be paid out as a lump sum by age 25 unless they have a permanent disability.
Does paying super to the estate avoid death benefit tax?
No. If super is paid to the estate, the estate is taxed on the share going to non-dependant beneficiaries at a maximum of 15% on the taxed element and 30% on the untaxed element. The share going to dependants remains tax-free.
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Sorting out a loved one’s super, or want to check who your own super will go to and how it will be taxed? Call Nanak Accountants & Associates on 1300 626 258. Our SMSF accountants and tax planning advisers can review nominations, components and dependency evidence, and you can also contact our team to book a time.
This article is general information only and is not personal financial or tax advice. Information checked against ATO and ATO legal database (ITAA 1997 and SIS Regulations) sources on 19 October 2026.
