Welcome to my weekly Insights blog. Once a week, we cover topics such as wealth creation, super, estate planning and tax. This is Part 3 of our 10-part series on how wealthy Australian families build, protect and pass on their wealth.
Many people carefully write a Will, assuming it covers everything they own. But for most Australians, one of their largest assets isn’t covered at all: their super.
Super is held in trust by your fund’s trustee, not owned by you directly. When you die, the trustee decides who receives it, unless you’ve given them a valid instruction. Getting this wrong can send your super to the wrong person, or cost your family tens of thousands of dollars in avoidable tax.
Key takeaways
Your Will does not control your super. Your fund’s trustee decides who receives it unless you’ve made a valid binding nomination.
A binding death benefit nomination (BDBN) tells the trustee exactly who to pay. Many lapse after three years unless they’re non-lapsing.
Super can only be paid to your dependants or your estate. Adult children usually count as dependants for this purpose, but not for tax.
Super paid to adult children who weren’t financially dependent on you is often taxed at up to 17% on the taxable component, plus more if it includes an untaxed element.
Strategies such as a recontribution strategy and well-timed withdrawals can reduce that tax.
Why your Will doesn’t cover your super
Your Will deals with assets you own personally. Super is different: it’s held by the trustee of your fund under the fund’s trust deed and super law. When you die, your super doesn’t automatically pass to your estate.
Instead, the trustee pays your death benefit to one or more of your dependants, or to your legal personal representative (the executor of your estate). If you haven’t left a binding instruction, the trustee uses its discretion. That can lead to outcomes you didn’t intend, especially in blended families.
Your options for directing your super
Option
How it works
Certainty
No nomination
The trustee decides who to pay, following the fund’s rules
Low
Non-binding nomination
You state your wishes, but the trustee can still decide otherwise
Low to medium
Binding death benefit nomination
The trustee must pay the people you name, if the nomination is valid
High, while it stays valid
Reversionary pension
Your account-based pension continues automatically to a nominated person, usually your spouse
High
A binding nomination must be signed and witnessed correctly, and can only name eligible people. In many retail and industry funds, it lapses after three years unless the fund offers a non-lapsing version. In an SMSF, the rules depend on the fund’s trust deed, so the deed and the nomination need to match.
Who can receive your super
Super law only allows your death benefit to be paid to:
Your spouse, including a de facto partner
Your children, of any age
Anyone who was financially dependent on you, or in an interdependency relationship with you
Your estate, via your legal personal representative
If you want super to go to someone else, such as a sibling or grandchild who isn’t financially dependent on you, it generally has to be paid to your estate first and then dealt with under your Will. Paying super to your estate also lets it flow into a testamentary trust, which we’ll cover in Part 5.
The “death tax” on super
Australia doesn’t have an inheritance tax, but super comes close. Whether tax applies depends on who receives it, and that’s based on a different definition of “dependant” than the one above.
Tax-free: death benefits paid to a spouse or former spouse, a child under 18, or someone financially dependent on you or in an interdependency relationship.
Taxed: death benefits paid to adult children who weren’t financially dependent on you. The taxable component is generally taxed at up to 15% plus the 2% Medicare levy, and up to 30% plus Medicare levy on any untaxed element. If the benefit is paid through your estate, the Medicare levy doesn’t apply.
On a $600,000 super balance that is mostly taxable component, that can mean around $100,000 in tax for adult children. For many families, it’s the single largest tax bill in the whole estate.
How families plan around it
Recontribution strategy. Once you meet a condition of release, such as retiring after 60, you may be able to withdraw super tax-free and recontribute it as a non-concessional contribution. That converts taxable component into tax-free component, which adult children receive tax-free. Contribution caps and your total super balance limit how much you can do.
Withdrawing before death. If someone is terminally ill or very elderly, withdrawing super while they’re alive can avoid the death benefits tax entirely, because withdrawals after 60 are generally tax-free. This needs careful timing and an enduring power of attorney if capacity is a concern.
Directing super to tax dependants. Paying super to a spouse, and leaving other assets to adult children, can sometimes reduce the overall tax.
Keeping nominations current. Review nominations after any major life event, such as marriage, separation, a new child or a death in the family.
Frequently asked questions
Does my Will cover my superannuation in Australia?
No. Super is held by your fund’s trustee and is only dealt with by your Will if it’s paid to your estate. Use a binding death benefit nomination, or a reversionary pension, to control where it goes.
Do adult children pay tax on inherited super?
Usually yes, unless they were financially dependent on you. The taxable component is generally taxed at up to 15% plus the Medicare levy, or more if it includes an untaxed element. The tax-free component is not taxed.
How long does a binding death benefit nomination last?
In many funds, a binding nomination lapses after three years unless you renew it. Some funds, and many SMSFs, allow non-lapsing nominations. Check with your fund, or your SMSF trust deed.
Check your super is going where you want
Wealthy families treat their super nominations as carefully as their Will. A five-minute check of your fund’s nomination, and a conversation about the tax your children might pay, can save your family a great deal later.
At TaxAssist Accountants Dee Why, we help Northern Beaches families and SMSF trustees review death benefit nominations, reversionary pensions and recontribution strategies. Call us on (02) 9045 1511 or email [email protected] to book a review.
This article contains general information only and does not take into account your personal circumstances. It is not legal or financial product advice. Please speak with a qualified adviser before making decisions about your super or estate plan.
With BAS season in full swing, scammers are sending emails pretending to be from the ATO. Recent versions talk about a “payment update” or an “income statement review” and try to get you to click a link or open an attachment, which can install remote-access software on your computer.
How to spot them
The ATO says it will never send you an unsolicited email with a link or attachment, or ask you to log in to myGov through a link in an email or text.
What to do
Don’t click links or open attachments. Go straight to ato.gov.au or my.gov.au yourself.
If you’ve already clicked or installed something, disconnect the device from the internet and contact your IT support.
Forward suspicious emails to [email protected], or call the ATO scam line on 1800 008 540.
Not sure if a message about your tax is real? Call us. We’re always happy to check.
Please share this with your team, especially anyone who handles your accounts inbox. Contact our Dee Why team if you’re unsure about anything you’ve received.
The switch-off had been planned for 1 December, which would have given many businesses only weeks to rethink how they pay their BAS and tax bills. The Government is covering the card surcharges during the extension, but there’s no promise that cards will still be accepted directly after June next year.
Our tip: use the extra time to plan
If you lean on a card to smooth cash flow at BAS time, now is a good moment to look at the alternatives:
setting up BPAY, direct debit or bank transfer for ATO payments
a separate tax savings account you top up each month
an ATO payment plan or other finance options if cash flow is tight.
Welcome to my weekly Insights blog. Each week, we look at a topic in wealth creation, super, estate planning or tax. This week we look at how to protect your family’s wealth when your children’s relationship breaks down.
You’ve spent a lifetime building your wealth, and you want it to help your children. But if a child’s relationship breaks down, money you gave them, or left them, can end up in the property pool and be split with their former partner. This is wealth destruction.
It’s an uncomfortable topic, and most families avoid it. Yet roughly one in three Australian marriages ends in divorce, and de facto couples face the same property rules. A little planning now can make a big difference to what stays in the family.
Key takeaways
Under the Family Law Act, gifts and inheritances are not automatically protected. The Family Court can include them in the property pool or take them into account when dividing it.
An outright gift, such as a home deposit, usually becomes part of the couple’s shared property very quickly.
A binding financial agreement (BFA) is the most direct way for a couple to agree what’s excluded, but it must meet strict legal requirements.
Keeping wealth in a family trust or a testamentary trust, where your child is a beneficiary but doesn’t control the trust alone, can give strong protection.
Lending money instead of gifting it, with a written loan agreement and ideally security, can let the money be treated as a debt owed back to you.
Why an inheritance isn’t automatically safe
Many people assume an inheritance or a gift from mum and dad stays with their child if the relationship ends. That isn’t how Australian family law works.
When a married or de facto couple separates, the court looks at everything either of them owns, whoever’s name it’s in. It then considers each person’s contributions and future needs to decide a fair split. An inheritance is usually treated as a contribution by the child who received it, but it can still be shared.
Timing matters. Money received late in a relationship, and kept separate, is more likely to stay with your child. Money received early and mixed into a joint home or bank account is much harder to protect.
Your four main options
Option
How it works
Level of protection
Watch out for
Outright gift
You transfer money or assets to your child
Low
Becomes your child’s property and is easily mixed with their partner’s
Documented loan
You lend the money under a written agreement, repayable on demand and ideally secured by a mortgage
Medium to high
Must be a genuine, enforceable loan, not a gift in disguise
Family or testamentary trust
Assets stay in a trust and your child receives distributions
Medium to high
Weaker if your child controls the trust on their own
Binding financial agreement
Your child and their partner agree in writing what’s excluded if they separate
High, if done properly
Strict legal formalities; can be set aside in some cases
Binding financial agreements
A binding financial agreement, sometimes called a “prenup”, is a contract between your child and their partner under the Family Law Act. It sets out how property will be dealt with if they separate. It can be signed before the relationship, during it, or after a separation.
A BFA can specifically exclude gifts and inheritances from family, so it’s the most direct protection available. But it only works if it’s done properly:
Each person must receive independent legal advice before signing, and their lawyer must sign a certificate confirming it.
Both people should fully disclose their finances.
Neither should be pressured into signing, especially close to a wedding.
Even then, a court can set a BFA aside in some situations, such as fraud, unconscionable conduct, or a major change involving the care of children. A BFA is something your child arranges with their partner and their own lawyer. As a parent, your role is to raise it early and, where appropriate, make it a condition of significant help.
Trust distributions versus outright gifts
Instead of handing over a lump sum, many families keep wealth inside a trust and let children benefit from it over time.
Family (discretionary) trusts. Assets held in a discretionary trust don’t belong to any one beneficiary. Your child has a hope of receiving distributions, not a right to the assets. This generally makes them harder for a court to treat as your child’s property.
Testamentary trusts. A testamentary trust is created by your Will. Instead of your child inheriting directly, their share goes into a trust they can benefit from. A well-drafted protective testamentary trust can help keep the inheritance out of reach of a former partner, and it can offer tax benefits too.
The catch is control. The High Court has made clear that if one spouse effectively controls a trust, its assets can be treated as their property. If your child is the sole trustee and appointor, the protection is much weaker. Many families share control with a sibling or another trusted person, or hand control to the child gradually.
Even where trust assets aren’t treated as property, a court may still see regular distributions as a financial resource of your child. That can affect how the rest of the pool is divided, so a trust reduces risk rather than removing it.
Loan-back strategies: lend, don’t give
The “bank of mum and dad” is one of the biggest sources of home deposits in Australia. If you help a child buy a home, consider lending the money instead of gifting it.
A genuine loan is a debt your child owes back to you. If they separate, the debt can generally be deducted before the pool is divided. For the loan to be taken seriously, it should:
Be in writing and signed at the time the money is advanced, ideally by both your child and their partner.
Be repayable on demand, so you can call it in if needed.
Be secured where possible, for example by a registered second mortgage over the property.
Be treated like a real loan. Record any repayments or interest, and review the agreement every few years so it doesn’t lapse under limitation laws.
Courts look closely at family loans. An undocumented “loan” that nobody ever expected to be repaid is usually treated as a gift. The more it looks like a commercial arrangement, the stronger it is.
The same idea can apply to an inheritance. A testamentary trust can lend funds to a beneficiary for a home purchase rather than distributing capital outright, keeping the asset in the trust.
Tax and Centrelink points to keep in mind
No gift tax. Australia has no gift or inheritance tax, but giving away an asset other than cash, such as shares or property, can trigger capital gains tax and stamp duty.
Centrelink gifting rules. If you receive, or may soon receive, the Age Pension, gifts above $10,000 in a financial year or $30,000 over five years count as your assets for five years. A loan isn’t a gift, but Centrelink still counts it as your financial asset.
Trust distributions must be real. A distribution to an adult child should genuinely benefit that child. Distributions that are really enjoyed by someone else can attract ATO attention under section 100A.
Frequently asked questions
Is an inheritance protected in a divorce in Australia?
Not automatically. The Family Court can include an inheritance in the property pool. It’s usually treated as a contribution by the person who received it, and it’s more likely to stay with them if it was received late in the relationship and kept separate.
Should I lend or gift my child a home deposit?
If protecting the money matters to you, a properly documented loan is generally safer than a gift. Put it in writing, make it repayable on demand, and consider securing it with a registered mortgage over the property.
Does a testamentary trust protect an inheritance from a child’s divorce?
It can help significantly, especially if your child doesn’t control the trust on their own. The court may still take the trust into account as a financial resource, so it reduces the risk rather than removing it entirely.
Can parents make their child sign a binding financial agreement?
No. A BFA is an agreement between your child and their partner, and each must get independent legal advice. Parents can encourage one, or make financial help conditional on it, but pressure on either partner can make the agreement easier to overturn.
Plan the conversation, not just the paperwork
The best protection usually combines a few of these tools: a Will with testamentary trusts, family loans that are properly documented, and an open conversation with your children about why it matters. Done early and explained well, it’s about protecting the whole family, not about distrusting anyone.
At TaxAssist Accountants Dee Why, we work alongside your estate and family lawyers on the tax and structuring side, including trusts, loan arrangements and the Centrelink impact of gifting. Call us on (02) 9045 1511 or email [email protected] to start the conversation.
This article contains general information only and does not take into account your personal circumstances. It is not legal or financial product advice. Family law and estate planning arrangements should be prepared by a qualified lawyer.
Many business owners are discovering this at tax time: interest the ATO charges on late or unpaid tax is no longer tax deductible.
Since 1 July 2025, the general interest charge (GIC) and shortfall interest charge (SIC) can’t be claimed as a deduction. That applies even if the debt relates to an earlier year. GIC also compounds daily, so the cost grows quickly.
The 2025–26 tax return is the first where most businesses will feel the change. If you’ve been using the ATO as a cheap overdraft, it isn’t cheap anymore.
What you can do
Pay down the ATO debt first if you can. The sooner it’s paid, the less interest accrues.
Keep any payment plan as short as possible. Interest keeps accruing while you’re on a plan, but a plan stops debt recovery action while it’s being managed.
Compare a business loan. Interest on borrowings used in your business can still be deductible, so refinancing the debt may cost less after tax. Get advice first.
Ask about remission. If something genuinely went wrong, you can still ask the ATO to reduce or cancel the interest.
Seasonal cash flow? Plan ahead
Tradies, builders and hospitality businesses on the Northern Beaches often have lumpy cash flow, which is when tax debts tend to build up. Setting aside GST and PAYG in a separate account each week, and planning for quieter months, is the simplest way to avoid paying non-deductible interest.
Renting out your place in Manly, Freshwater or Palm Beach on Airbnb or a similar platform? The ATO already knows.
Since 1 July 2023, short-term accommodation platforms have had to report their hosts’ transactions directly to the ATO under the Sharing Economy Reporting Regime. That data includes details such as the property address and the number of nights booked. The ATO can match it against what you report in your tax return.
The most common mistakes we see
Claiming a full year of expenses for a summer-only rental. If the property was only rented for part of the year, expenses generally need to be apportioned.
Forgetting about private use. Weeks when you, your family or friends stayed (or stayed for free) are private use, not rental.
Claiming for weeks the property wasn’t genuinely available. Blocked-out dates, or pricing well above the market, can limit what you can claim.
Not thinking about capital gains tax. Renting out your home can reduce your main residence CGT exemption when you eventually sell.
Missing income. Cleaning fees and other amounts collected through the platform are part of your rental income.
Planning to list your place this summer?
The Northern Beaches has one of Sydney’s busiest summer rental markets. A quick conversation before the first guest arrives can help you keep the right records, claim what you’re entitled to, and avoid surprises when you sell.
