Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 143

There’s still time for some SMSFs to use 'anti-detriment' provisions

Amid all the rumours about changes to superannuation, one of the hottest is that the government will soon abolish the anti-detriment provisions.

I am referring to the ability of some superannuation funds to refund a lump sum to the member’s estate on death, in compensation for the 15% contributions tax that was deducted from their contributions during their working life.

How did this generosity start?

To understand how this unusual burst of generosity came about, you need to cast your mind back to July 1988, when Federal Treasurer Paul Keating introduced a 15% tax on deductible contributions to superannuation. Until then, there was a tax of 30% on exit, but no tax on entry.

Keating had promised there would be no new taxes during that term of government, so his method of changing the taxes was to chop the 30% tax in half, and put 15% on the front, leaving 15% on the back. Of course, the government claimed the 15% tax was not a new tax, merely a reshuffling of the existing one.

The new contributions tax was called 'detrimental' to qualifying dependants and, to compensate them, legislation was passed to enable all contributions tax paid to be refunded to the estate – hence the term 'anti-detriment provision'.

An anti-detriment payment can be made only to a spouse or former spouse of the deceased, a child of any age, or to the estate provided the ultimate beneficiaries are the spouse, former spouse or a child. It can only be made when an accumulation death benefit is paid as a lump sum, or when a pension is commuted to a lump sum on the death of a pensioner (or reversionary pensioner) within the prescribed period. This is usually three months from grant of probate or six months from the date of death.

Payments could be substantial

The calculation of the payment is complex, but in many cases the fund may use a simple formula. This is between 13.68% and 17.65% of the taxable component (excluding insurance) if the eligible service period commenced before 1 July 1988, and 17.65% for service that commenced after that date. For example, for a fund of $600,000, the anti-detriment payment could be $105,900.

As always, the devil is in the detail. The payment does not come immediately from government revenue but is created by allowing the fund a tax deduction. This means it comes from future tax payable by the fund.

Even though SMSFs can make an anti-detriment payment, it seldom happens in practice, because the payment must be made before the tax deduction can be claimed. Usually this means the fund needs to pay a benefit that is greater than the member’s account balance, and the fund needs to have substantial reserves to do this. Most don’t have them.

A worthwhile option, if you are in a position to do so, would be to withdraw a large chunk of your superannuation tax free after you turn 60, and then re-contribute it as a non-concessional contribution. For our $600,000 fund, this could increase the non-taxable component by $540,000 and reduce the tax that would be payable if the superannuation was left to a non-dependent, by $91,800. This would reduce the negative impact of any changes in the law.

Factors such as conditions of release, contribution caps and work tests all need to be satisfied, which is why expert advice is essential before adopting this strategy.

Another option, if you have an SMSF and think you are close to death, would be to roll the balance into a large retail fund. This fund may well have the ability to make an anti-detriment payment because it would be able to use up the tax concessions generated.

For some people, there is really nothing you can do to protect yourself against the removal of the anti-detriment provisions except cash in your super before your day of passing. That just leaves you the challenge of predicting this day, which should be easy compared to keeping up to date with superannuation changes.

 

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. See www.noelwhittaker.com.au.

 

2 Comments
Julie
February 23, 2016

That is why people have a Financial Adviser Ashley - so the Adviser can think about such things for you.

 

Leave a Comment:

RELATED ARTICLES

The case for the $3 million super tax

The mechanics of the $3 million super tax must be fixed

$5 million cap punishes 30 years of super saving

banner

Most viewed in recent weeks

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

The hidden property empire of Australia’s politicians

With rising home prices and falling affordability, political leaders preach reform. But asset disclosures show many are heavily invested in property - raising doubts about whose interests housing policy really protects.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Latest Updates

Shares

Four best-ever charts for every adviser and investor

In any year since 1875, if you'd invested in the ASX, turned away and come back eight years later, your average return would be 120% with no negative periods. It's just one of the must-have stats that all investors should know.

Our experts on Jim Chalmers' super tax backdown

Labor has caved to pressure on key parts of the Division 296 tax, though also added some important nuances. Here are six experts’ views on the changes and what they mean for you.        

Superannuation

When you can withdraw your super

You can’t freely withdraw your super before 65. You need to meet certain legal conditions tied to your age, whether you’ve retired, or if you're using a transition to retirement option. 

Retirement

A national guide to concession entitlements

Navigating retirement concessions is unnecessarily complex. This outlines a new project to help older Australians find what they’re entitled to - quickly, clearly, and with less stress. 

Property

The psychology of REIT investing

Market shocks and rallies test every investor’s resolve. This explores practical strategies to stay grounded - resisting panic in downturns and FOMO in booms - while focusing on long-term returns. 

Fixed interest

Bonds are copping a bad rap

Bonds have had a tough few years and many investors are turning to other assets to diversify their portfolios. However, bonds can still play a valuable role as a source of income and risk mitigation.

Strategy

Is it time to fire the consultants?

The NSW government is cutting the use of consultants. Universities have also been criticized for relying on consultants as cover for restructuring plans. But are consultants really the problem they're made out to be?

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.