An anti-detriment payment is an additional amount included in a lump sum death benefit paid to eligible beneficiaries. The purpose of this payment is to refund tax paid on concessional contributions upon death and effectively increase the superannuation death benefit available to dependant beneficiaries.
The SMSF can take advantage of the anti-detriment strategy to claim a tax refund and taxable deductions. However, in order to implement this strategy successfully, the following hurdles must be overcome:
- Whether the SMSF has sufficient cash or capital to pay the anti-detriment amount
Anti-detriment payments cannot be taken from other members’ accounts. The SMSF must therefore have sufficient capital available to fund the increased death benefit. If the SMSF trustees would like to be able to fund anti-detriment payments, they will need to ensure the SMSF holds a sufficient reserve (an anti-detriment reserve) or takes out an appropriate level of insurance cover.
- Whether the SMSF can fully utilise the tax deduction
The anti-detriment tax deduction the SMSF claims is determined by dividing the anti-detriment payment by 15 per cent. This can result in a significant amount and consideration must be given to whether the SMSF can utilise the deduction and how long it will take. It will be ideal if only accumulation phase members remain in the SMSF and the tax deduction can be fully claimed against the assessable income.
If the SMSF wants to take advantage of the anti-detriment strategy, planning ahead before the death of a member is crucial. If the circumstances in the SMSF are not suitable to utilise the anti-detriment strategy, the Trustee can consider rolling funds to a Retail Super Fund to claim a tax refund. For more information on reserve accounting, please refer to here.
The government has announced that the anti-detriment payment will be stopped from 1 July 2017. Please look at the 2016-2017 Federal Budget page for more information.