Warning on ATO draft ruling implications

Non-dependents could be forced to pay an additional 15 per cent capital gains tax on shares and property on top of the existing 16.5 per cent death levy, following a draft ruling issued by the Australian Taxation Office clarifying the tax treatment of pension assets following the death of a member.

That is the assessment of financial advisory group Lachlan Partners which last week warned ageing people with do-it-yourself superannuation funds that their non-dependent beneficiaries might ultimately face big tax bills as a result of the draft ruling.

It said that on top of the existing 16.5 per cent death levy imposed on taxable components, the non-dependent beneficiaries could be forced to pay a further 15 per cent CGT on shares and property.

However, the company claimed this new death tax could be legally avoided if the shares and property were converted to cash before the death of a parent.

Lachlan Partners partner Eric Maillard said the ATO had asked for submissions on the draft ruling "as it represents potentially another death tax on people who have taken the initiative to establish and manage their own superannuation funds to support themselves in retirement.

"Our advice to ageing clients is if this ruling comes into force, they should consider selling shares that have grown in value every couple of years and then buy them back or just convert them to cash, or risk their beneficiaries paying large unexpected bills," he said.