Many Australians Are Unknowingly Leaving Their Children With a Massive Tax Bill. When superannuation is passed on, a hidden rule can quietly drain up to 32% of it—unless families take steps in advance. Here’s what you need to know, and how to stop it.
The Hidden Cost of Dying With Superannuation
When someone with superannuation dies, the money they leave behind gets split into two components: a tax-free part, and a taxable part. Now here’s the catch: if that taxable part is left to an adult child (or anyone not financially dependent on the deceased), the government takes a big slice—up to 32%.
Let that number sink in. Imagine leaving $1 million behind. Sounds like a secure gift, right? But if most of that balance is considered taxable, then $320,000 could be gone before your children even see it.
And the kicker? Most people don’t find out until it happens. The tax is rarely explained clearly. It’s not on the average person’s radar. It’s buried in the fine print of the super system—and it costs families a fortune every year.
A Strategy Few Use, but Many Could
Financial adviser Ben Nash, from Pivot Wealth, says to Yahoo Finance that this tax hit can be “completely avoidable.” The solution is a relatively straightforward move called the withdrawal and recontribution strategy.
Here’s how it works. If you’re over 60 and retired (which meets what’s called a “condition of release“), you can withdraw money from your super without paying tax. Then, you can recontribute it as a non-concessional (after-tax) contribution. That money now sits in the tax-free component.
Repeat that process over time, within annual limits, and you’ve just shifted a big chunk of your super into the safe zone. No more 32% death tax hanging over your kids’ heads. Sure, it’s not the kind of task you can just knock out in a weekend.
Contribution caps, eligibility rules, and fund-specific rules all make this a space where financial advice helps. But the principle? It’s clear. Action now equals fewer regrets later.
Trillions in Motion—and a Gaping Knowledge Gap
Australians over 60 are set to pass on trillions of dollars in the coming decades. The Productivity Commission estimated $3.5 trillion by 2050. Others, like JBWere, go further—predicting $5.4 trillion over just 20 years.
A huge share of that wealth is wrapped up in super funds. Which means millions of dollars are at risk of being involuntarily taxed simply because families weren’t aware of how inheritance works under current super laws.
It’s hard not to see a disconnect here. A massive financial issue, affecting nearly every household, but barely mentioned in mainstream conversations. Even many retirees with substantial super balances have never heard of this tax—let alone how to avoid it.
Time, Not Complexity, Is the Real Obstacle
Most people aren’t avoiding this tax out of laziness—they just don’t know it exists. And when they do hear about it, it can sound confusing or bureaucratic. But in reality, the concept is surprisingly manageable with time, planning, and a bit of professional support.
It’s not about chasing loopholes. It’s about understanding how the system works—and using the rules to protect your legacy. If you’re a parent with super, the window to act is while you’re alive and financially independent.
If you’re an adult child, you might want to gently raise the topic with your parents—awkward or not. Because one quiet conversation today could mean hundreds of thousands saved tomorrow.
