Most Australians know there is no inheritance tax here. Estate duties were abolished decades ago, and the house, the shares and the bank account all pass to the next generation without the taxman taking a slice. It is one of the few genuinely simple things in Australian tax.
Superannuation is the exception, and it is the one nobody mentions. For a lot of families, super is now the largest single asset outside the family home — and when it passes to an adult child, a meaningful share of it never arrives.
In a nutshell
- There is no death tax in Australia in the ordinary sense — but super left to someone who was not a dependant for tax purposes is taxed on the way out.
- An adult child who supports themselves is a non-dependant. This catches almost everybody.
- The taxable component is taxed at 17 per cent where the fund pays them directly, or 15 per cent where it is paid through your estate. The difference is the 2 per cent Medicare levy.
- On a $600,000 balance with a typical component split, that is roughly $81,600 — payable by your children, not by you.
- Several things reduce it. All of them have to be done while you are alive.
Why super is taxed on death at all
Superannuation gets concessional tax treatment while it is doing its job, which is funding your retirement. When it passes instead to someone who was not depending on you, the law treats the concession as having served its purpose and claws part of it back. That is the entire logic of the death benefits tax. It is not a penalty and it is not an accident — it is the deliberate price of a lifetime of concessional treatment that ended up benefiting someone else.
The trap: “dependant” means two different things
This is the part that catches people, and it catches them because the law genuinely does contradict itself depending on which Act you are reading.
Under superannuation law, your child of any age is a dependant. Your fund is perfectly entitled to pay them directly, and it will.
Under tax law, a child is only a dependant if they are under 18 or were financially dependent on you. An independent 45-year-old is a dependant for one purpose and not the other.
The practical result is that nothing goes wrong procedurally. The fund pays, the money arrives, no forms bounce back. It is simply that a share of it was deducted on the way past. For tax purposes a death benefits dependant is your spouse or de facto, a former spouse or de facto, a child under 18, a person in an interdependency relationship with you, or anyone else who was financially dependent on you. Everybody else is a non-dependant.
What it actually costs
The tax applies only to the taxable component of your super. The tax-free component — built from personal after-tax contributions — passes without tax no matter who receives it.
| Who receives it | Taxed element | Untaxed element |
|---|---|---|
| A tax dependant (spouse, child under 18) | Nil | Nil |
| A non-dependant, paid direct from the fund | 17% | 32% |
| A non-dependant, paid via your estate | 15% | 30% |
The direct rates include the 2 per cent Medicare levy, which does not apply to a deceased estate. An untaxed element is uncommon — it arises mainly in some older public sector schemes. Rates current at August 2026.
A worked example. Say you have $600,000 in super and, like many people, about 20 per cent of it is tax-free component. The taxable component is $480,000. Paid directly to your adult children, the tax is 17 per cent of that, or $81,600. Paid through your estate instead, it is 15 per cent, or $72,000 — a saving of $9,600, but at the cost of exposing the money to anyone with a claim against your will.
You can work out your own number, using your own component split, with our super death benefits tax calculator.
What people actually do about it
Recontribution. Withdraw money from super and put it straight back as an after-tax contribution. The withdrawal is generally tax free once you are over 60 and retired, and what goes back in counts as tax-free component — so the strategy converts taxable component into tax-free component and shrinks the eventual bill. It needs a condition of release, room under your non-concessional cap, and you generally need to be under 75. Our super strategy checker shows which contribution strategies you currently qualify for.
Withdrawing before death. Once you are over 60 and retired, lump sums out of super are generally tax free to you, and money already outside super is not a death benefit at all. The obvious difficulty is knowing when.
Leaving it to a spouse first. Tax free on the first death. It usually moves the problem to the second death rather than solving it.
Directing it through the estate. Saves the 2 per cent Medicare levy, but exposes the money to challenges against your will and to creditors.
Checking your nomination is valid. Costs nothing, takes minutes, and is the one most often left undone. A lapsed binding nomination hands the decision back to the trustee.
What this could mean for you
If your super is a large part of your estate: work out the number before assuming it is small. For some families it is a rounding error; for others it is the largest single tax their family will ever pay.
If you are over 60 and retired: you already hold the main lever. A recontribution strategy is only available while you are alive and eligible, and eligibility narrows with age.
If you have not looked at your nomination in a few years: check whether it is binding, whether it has lapsed, and whether the people named are still the people you would name today.
If you have a blended family: the interaction between your nomination, your will and the dependant definitions is where this gets genuinely complicated, and it is worth proper advice rather than a form.
None of this is urgent in the way a deadline is urgent. It is simply that every option here requires you to be alive and eligible, which makes it the kind of thing that is easy to leave and expensive to leave too long. If super is a significant part of what you will pass on, please get in touch and we will work through the numbers with you.
Navarino Wealth Pty Ltd is a Corporate Authorised Representative (No. 1318210) of PFP Financial Services Pty Ltd, AFSL 535484. This article contains general information only and does not take into account your objectives, financial situation or needs. Tax rates described are those applying to superannuation lump sum death benefits as at August 2026 and may change. The worked example is illustrative and uses assumed figures. Your own component split, eligibility and outcome will differ. You should consider whether the information is appropriate for your circumstances, and obtain personal financial, taxation and legal advice, before acting on it.