5.3.1.30 Taxation exemptions related to death
Summary
This topic explains the taxation exemptions on payments related to the death of a recipient or, in the case of CP recipients, the death of the care receiver.
This topic contains information on:
- payments in the name of the deceased
- payments to surviving partners (1.1.P.85) after the death of a recipient
- the tax exempt amount formula
- payments to third parties after the death of a recipient
- payments to CP recipients on the death of the care receiver, and
- the effect of a surviving partner's age on the tax treatment of a lump sum.
Payments in the name of the deceased
ALL payments made in the name of a deceased recipient, after their death, are NOT taxable.
Explanation: This applies regardless of whether it is only one further payment issued after the death of a single pensioner, or several payments that may be accessed by a surviving partner.
Payments to surviving partners after the death of a recipient
After the death of a recipient, a surviving partner's rate of payment would usually increase from the married rate to the single rate. In some circumstances, however, the surviving partner's single rate may be greater than the previous combined rate.
Example: A deceased recipient may have been receiving a low rate of payment due to income from other sources. Their partner may now be receiving a higher rate of payment than the previous combined rate because the other income ceased on the death of the recipient.
The tax exemption status of payments made to a surviving partner during the bereavement period depends on whether the new single rate of payment is higher or lower than the previous combined rate. A surviving partner receives a tax exemption on a bereavement lump sum in the financial year in which it is paid. The following table shows which payments, or parts of payment, made to the surviving partner are exempt from tax.
| If the recipient's new single rate is … | then a lump sum is … | and the tax exempt amount is … |
|---|---|---|
| higher | not payable | the difference between the old combined rate and the new single rate during the bereavement period. |
| lower | payable | the amount determined by applying the tax exempt amount formula. |
Act reference: SSAct section 21(2) Bereavement definitions
Tax exempt amount formula
The tax exempt amount of all social security payment bereavement lump sums is calculated on the payments received by the surviving partner during the bereavement period. The amount is the sum of the NON-TAXABLE amount the survivor would have received, and the TOTAL amount the deceased recipient would have received, in the bereavement lump sum period if the deceased recipient:
- had not died
- had been under age pension age, and
- had not been separated from their partner due to ill health.
Explanation: Although the Income Tax Assessment Act 1997 uses separate method statements to work out the tax exempt amount for different payments, the formula is the same for all social security payments.
Act reference: SSAct section 21(2) Bereavement definitions, section 23(1)-'social security payment', section 23(5A) Pension age
Bereavement lump sums
The following payments paid as a bereavement lump sum to a surviving partner after the death of a recipient are tax exempt up to the tax exempt amount:
- age pension
- austudy payment
- carer payment
- disability support pension
- disability wage supplement
- jobseeker payment
- parenting payment (partnered)
- partner allowance (ceased 1 January 2022)
- special benefit
- youth allowance.
Act reference: Income Tax Assessment Act 1997 section 52-10(3) Explanation of the table - refer to case 4, section 52-25 Tax-free amount of certain bereavement lump sum payments, section 52-30 Tax-free amount of certain other bereavement lump sum payments
Bereavement payments (not bereavement lump sums)
The following payments paid in the bereavement period to a person because of the death of a recipient (except bereavement lump sums paid after the death of a person's partner) are tax exempt:
- age pension
- austudy payment
- carer allowance
- CP (however, if a lump sum is paid under SSAct section 236A because of the death of the care receiver, CP is only tax exempt up to the tax exempt amount)
- disability support pension
- disability wage supplement
- jobseeker payment
- parenting payment (partnered)
- parenting payment (single)
- partner allowance (ceased 1 January 2022)
- special benefit
- youth allowance.
Act reference: SSAct section 236A Lump sum payable in some circumstances
Income Tax Assessment Act 1997 section 52-10(3) Explanation of the table - refer to case 3
Effect of surviving partner's age on lump sum tax treatment
The tax treatment of a lump sum is governed by the surviving partner's age at the time of death. It is NOT affected if the surviving partner reaches age pension age during the bereavement lump sum period. In such cases, a surviving partner receives a tax exemption on the bereavement lump sum in the financial year in which it is paid.
Surviving partner dies shortly after lump sum paid
The lump sum is an entitlement of the surviving partner. Therefore, no recovery action occurs if the surviving partner dies shortly after it is paid.
Payments to CP recipient after the death of the care receiver
Whether any CP received by a carer during the bereavement period because of the death of the care receiver is tax exempt will depend on whether the carer and/or care receiver are under or over age pension age.
| If any of the care receivers have died and … | if the carer does not qualify for bereavement payments but receives an ordinary payment during the bereavement period, then the payments are … | if the carer receives payment because of a person's death (except a lump sum payment because of their partner's death), then the payment is … | if the carer receives a lump sum payment because of their partner's death, then the payment is … |
|---|---|---|---|
| the carer is age pension age or over | not tax exempt | tax exempt (unless made under SSAct section 236A) | not tax exempt |
| the care receiver was age pension age or over | not tax exempt | tax exempt (unless made under SSAct section 236A) | not tax exempt |
| both the carer and the care receiver were under age pension age | tax exempt | tax exempt (unless made under SSAct section 236A) | not tax exempt |
Act reference: SSAct section 236A Lump sum payable in some circumstances
Income Tax Assessment Act 1997 section 52-10 How much of a social security payment is exempt?
Payments to third parties after the death of a recipient
When Services Australia simultaneously learns of the death of both members of a couple (1.1.M.120), a lump sum may be payable. This may be paid to any person the delegate thinks appropriate and it is NOT taxable.