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However, it is not widely known that a provision exists within the Income Tax Assessment Act (ITAA) 1936 to allow for a death benefit payment from a superannuation fund to be increased by an amount equal to the notional reduction of a member's account balance due to contributions tax being levied on the member's contributions since 1988.

The fund paying the extra benefit is also entitled to claim a tax deduction for the contributions tax collected.

The additional payment is referred to as an anti-detriment payment as superannuation death benefits are supposed to be tax free when paid to a dependant.

Anti-detriment Payment

Anti-detriment payments are not compulsory and are payable only on lump sum benefits paid to dependants or paid into an estate for the benefit of one or more dependents.

The definition of a dependant under the Income Tax Assessment Act is:

• Spouse
• Children under 18 years
• Financial dependents

Benefit Calculation

For an accumulation fund a trustee may chose to calculate the anti-detriment payment by either:

• Having the fund's auditor certify the amount the benefit has been reduced due to the contributions tax paid since July 1988, or
• Apply a tax office formula

The formula's inputs include the deceased member's:

• Original death benefit payment amount
• Eligible service days
• Days since 1 July 1988
• Days from death to age 65

Based on a 60 year old with a $500,000 accumulation, the formula provides their dependent with an extra $54,000 anti-detriment payment in addition to the $500,000 death benefit lump sum.

Fund Tax Deduction

The trustee of the fund recoups the anti-detriment amount by claiming a tax deduction under Section 279D of the ITAA. The deduction is equal to the "notional reduction due to contributions tax" divided by 15%.

Based on the above example the fund would be able to claim a tax deduction of $54,000 / 0.15 = $360,000.

This loss may be carried forward providing significant tax advantages to the fund.

SMSF's and Anti-detriment Payments

A key issue for SMSF trustees is how to fund an anti-detriment payment. It cannot be sourced from another member's account and SMSFs may not borrow money for more than 90 days.

Therefore, SMSF trustees should consider the establishment of fund reserves so as to provide an account from which to pay any future anti-detriment liabilities.