Is Death Tax Fair?

Is Australia’s Superannuation System Fair?

As single-person households become more common, financial planners are raising concerns about the fairness of Australia’s superannuation tax system. While there’s no inheritance tax, superannuation savings can be taxed upon death, and the amount depends on one’s marital status and whether they have dependants.

For single Australians without dependants, up to 32% of their superannuation balance may be taxed before it is passed to their nominated beneficiary. The tax is divided between the taxed element (up to 17%) and the untaxed element (up to 32%).

In contrast, married people, those in de facto relationships, and those with dependent children typically don’t face the same tax consequences. Their superannuation is generally passed on tax-free.

Is the System Fair?

This disparity raises concerns about fairness. The number of lone-person households is on the rise, with recent ABS data showing one in four Australian households are now single-occupant, a figure projected to grow significantly by 2041. Despite this trend, the tax system still favours traditional family structures.

Singles also face higher taxes in other areas—less welfare support, higher Medicare levy surcharges, and more expensive private health insurance and housing. Additionally, tax benefits like family trusts are unavailable to single individuals, disadvantaging them in wealth accumulation.

Fortunately, there are strategies that Financial Adviser use to help clients reduce the tax payable on super death benefits.