Thursday 01 February 2018

Anti-detriment is generally no longer payable

Recent legislative changes mean that, from 1 July 2017, superannuation funds are generally unable to make anti-detriment payments.

However, transitional rules apply to allow anti-detriment to be paid in circumstances where a member died before 1 July 2017 and the death benefit is paid before 1 July 2019.

The following information applies to death benefits paid before 1 July 2017 or which are eligible for the transitional rules.

What is it?

Taxation on superannuation contributions and earnings was introduced effective from 1 July 1988, justified by reduced benefit payment taxes. However as certain death benefits were tax free, an anti-detriment benefit was introduced to offset the unintended impact of the introduced tax on otherwise tax free death benefits.

Hence since 1 July 1988 superannuation funds have been able to pay an augmented lump sum death benefit payment to compensate for the impact of the introduced tax.

When is it payable?

An anti-detriment benefit is payable upon the death of a fund member in association with a lump sum death benefit payment, whether or not the deceased member’s benefit was in accumulation or pension phase at the time of death. Generally an anti-detriment benefit is not payable if the benefit is paid as a death benefit pension. However in certain circumstances it may be payable if the death benefit pension is subsequently commuted and paid as a lump sum to the beneficiary.

Who is it payable to?

Either to a spouse, former spouse or child of the deceased, or the trustee of the deceased’s estate to the extent a spouse, former spouse or child of the deceased can reasonably be expected to benefit. For the purposes of an anti-detriment payment, a ‘child’ may be of any age, and may include an adopted, step or ex-nuptial child, a child of the deceased’s spouse or any child as defined in the Family Law Act 1975.

How much is payable?

The additional amount payable may be calculated using different methods:

Audit method

the fund calculates, and the fund auditor verifies, the amount of death benefit that would have been payable if contributions tax had not been levied.

This method generally relies on the fund having kept detailed records and re-constructing the contributions and earnings history of the account. It may be an impractical method if benefits have been rolled over to or from other superannuation funds, and is otherwise a costly option to administer, especially for large funds.

Formula method

the Explanatory Memorandum to the Bill introducing the anti-detriment provision in 1988 included a formula as an alternative to the audit method.

The ATO has provided various alternative formulae.

Explanatory Memorandum formula
Anti-detriment amount = (0.15PT / (T - 0.15P)) x A x (T / (T + FSD))
is amount of death benefit payment less UDCs
is total days in eligible service period
is days in T occurring after 30 Jun 88
is days from date of death to (generally) age 65

This method is considered inappropriate for accumulation/non-defined benefit funds – see ATO ID 2006/290.



ATO formula as described in ATO ID 2007/219

Anti-detriment amount = (0.15P / (R - 0.15P)) x C
is the taxable component (calculated after excluding any insurance component for which deductions have been claimed) of the lump sum death benefit payment
is total days in eligible service period
is days in R occurring after 30 Jun 88



Which method should be used?

In ATO ID 2007/219 the ATO states that the formula method will be accepted where the actual amount cannot be calculated by the paying superannuation fund using the audit method. However, in ATO ID 2010/5 the ATO states that the formula method is

... also appropriate in situations where the Fund’s records do not track the effect of fund tax on the accounts of individual members but the Fund may have been able to calculate the amount of tax paid on amounts in these accounts if it was to reconstruct those accounts from its records ...

Other issues

The additional benefit paid to the beneficiary is claimed back by the superannuation fund from the ATO by a deduction against assessable income in the year in which the benefit is paid, or possibly in future income years. In some cases, the superannuation fund may decline to pay the anti-detriment benefit if it is unable to utilise the tax deduction.

Self managed superannuation funds may experience difficulties in providing anti-detriment benefits. Having the available funds to pay the benefit initially can be a problem, and utilising the deduction (which can be tens or hundreds of thousands of dollars) may also be a problem. Various potential solutions to these problems have been suggested, including setting aside funds using a reserving strategy, the fund taking insurance to cover the benefit payable, and accepting new, younger members to the fund to increase the likelihood of assessable income.

Useful references

ATO ID 2006/290; ATO ID 2007/219; ATO ID 2010/5

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