Lump Sum Death Benefit ETP

(last updated 05/06/2014)

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A death benefit, called a death benefit Eligible Termination Payment (ETP), is a lump sum received from another person's employer after the death of that person.

The tax treatment of a death benefit ETP depends on the relationship the recipient had with the deceased person (see below for summary of tax treatment):
  • Dependant of the deceased - You are a dependant of the deceased if, at the time of their death, you were one of the following: a surviving spouse; a former spouse; a child of the deceased who is less than 18 years old; any other person who was financially dependent on the deceased;any person who had an interdependency relationship with the deceased.
  • Non-dependant - any other person entitled to receive the death benefit directly from the employer of the deceased person.
  • Payment to trustee of Deceased Estate - If no person is directly entitled to a death benefit ETP than the benefit will be paid to the trustee of the estate of the deceased person.

Summary of Tax Treatment

An death benefit ETP is divided into a tax-free and a taxable component (see table below):
  • the tax-free component of a death benefit is not subject to tax and may include the pre-July 1983 segment.
  • the taxable component (the total death benefit amount minus the tax-free component) is taxed according to whether you are a dependant of the deceased.
In addition, a CAP now applies to the tax concessons of ETP's - see this post on Whole of Income Cap Rules that apply from 1 July 2012.

It is also possible to receive a series of payments for a death benefit over more than one financial year. All of the death benefit payments will count towards the recipient beneficiary’s death benefit ETP cap amount.

Death benefit ETPs
2013/14 tax treatment
Tax-free component
Post-June 1994 invalidity and pre-July 1983
Taxable component
Paid to dependant
First $180,000* (indexed) tax-free
Balance at 45.0% plus Medicare levy
Paid to non-dependant
First $180,000* (indexed) at 30.0% plus Medicare levy
Balance at 45.0% plus Medicare levy
*Medicare levy 1.5 per cent for 2013/14 and 2.0% for 2014/15 onwards

*For 2014/15 the ETP Cap has increased to $185,000 and will continue to be indexed.

See thos post for a summary of the tax treatment of all ETP's including Death Benefit ETP.

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