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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:
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.
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 (section 21(2)) 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.
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If the recipient's new single rate is… |
Then a lump sum is… |
And the tax-exempt amount is… |
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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
The tax-exempt amount of all social security payment (section 23(1)-'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:
Explanation: Although the Income Tax Assessment Act 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 23(1)-'social security payment', section 23(5A) Pension age
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-free amount:
Act reference: Income Tax Assessment Act 1997 sections 52-25 and 52-30 refer to case 4
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:
Act reference: SSAct section 236A Lump sum payable in some circumstances
Income Tax Assessment Act 1997 section 52-10(3) refer to case 3
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.
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.
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.
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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
When Centrelink 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.
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Last reviewed: 3 May 2010
