Tax treatment of a Beneficiary

An untaxed element could arise with payments made from an untaxed superannuation fund (e.g. public sector super fund) or the proceeds of an insurance policy paid via the super fund.

Where a pension account has been established with a reversionary beneficiary, the pension will continue to be paid to the nominated reversionary beneficiary (e.g. spouse) upon the member’s death. The continued payment of the tax-free pension to the reversionary pension is likely to be a more tax effective option than the beneficiary being paid out the funds in the form of a lump sum. However, a more restrictive definition of a dependant usually applies in these cases. The beneficiary must be a tax-dependant.  If paid to a minor child, the income stream must be paid out as a lump sum when the child turns 25 years of age.