Alex Jamieson: Are you ready for the ATO's biggest tax grab ever

The number of Australians setting up self-managed super funds is on the rise. As of December 2024, 638,411 self-managed super funds (SMSFs) existed in Australia, with 1,184,287 members. 
 

This means there are more Australians preparing to pass down their superannuation to the next generation. Leading financial expert and founder of respected financial advisory, AJ Financial Planning, Alex Jamieson, is warning adult children not to assume they'll receive the full balance tax-free.
 

"Super isn't automatically tax-free when it's inherited," Jamieson said.
 

"If you're not a 'tax dependent' under superannuation law and most adult children aren't, you could lose a significant portion of your inheritance to tax and many people have no idea this is coming."
 

With Australians amassing large super balances and often leaving them to adult children or relatives in their wills, Jamieson said understanding how the tax rules work could mean saving tens or even hundreds of thousands of dollars.
 

What many families don't know

When someone dies, any remaining superannuation is paid out to their nominated beneficiaries or legal representative. But if that person is not considered a tax dependent, for example, an adult child - up to 15 percent tax (plus Medicare levy) can be applied to the taxable component of the payout.
 

"This can come as a complete shock," Jamieson said.
 

"Someone thinks they're inheriting $400,000 and then finds out the ATO will take $60,000 of it. The emotional impact is compounded by the financial hit."
 

Who qualifies as a 'tax dependent'?
 

The rules define tax dependents narrowly: generally only spouses, de facto partners, minor children or someone financially dependent on the deceased at the time of death. Adult children who are financially independent are taxed.
 

"This is a critical distinction," Jamieson said.
 

"It doesn't matter what the will says. The tax treatment depends on the status of the beneficiary under super law, not just family relationship."

How to reduce or avoid the tax

There are strategies to legally reduce the tax burden on super inheritances but they require planning before death, not after.
 

Jamieson recommended that parents approaching retirement age or with significant super balances consider withdrawing taxable components while alive, especially if they are over 60 and the withdrawal is tax-free to them. This can convert a potentially taxable death benefit into a tax- free gift during their lifetime.
 

"In some cases, staged withdrawals in the later years of life can dramatically reduce the tax bill for adult children. It's about timing and structure," he said.
 

Another tactic is to consider recontribution strategies, where money is withdrawn from super and re-contributed as a non-concessional contribution to shift the balance from the taxable to tax-free component.
 

"Done correctly and with advice, you can preserve more of your hard-earned savings for your family, not the tax office," Jamieson said.
 

Have the right conversation now
 

Jamieson urged Australians to have conversations about estate planning and superannuation well before they're needed. He also recommended reviewing binding death nominations to ensure they're up to date and aligned with broader tax planning goals.
 

"This isn't just about where your money goes, it's about how much of it gets there," he said.
 

"The difference between doing nothing and having a clear plan can be six figures."
 

With Australians holding more wealth in super than ever before, Jamieson believes this is one of the most overlooked areas of inheritance planning and a growing issue across the country.
 

"People spend a lifetime building their super. A few smart decisions can make the difference between a legacy and a lost opportunity," Jamieson emphasised.
 

About Alex Jamieson
 
Alex Jamieson is the founder of Melbourne-based advisory firm, AJ Financial Planning. With a firm belief in responsible investing, Alex crafts investment portfolios for clients that not only meet their financial objectives but are also sustainable and match their ethical values.
 
A highly respected financial advisor, Alex is considered one of the country's leading experts on all matters financial planning, investing and retirement.
 
http://www.ajfp.com.au/