There are very limited circumstances where superannuation may be used to cover the cost of a funeral. The scenarios below are applicable under Australian law, however not all super funds allow early release. Check directly with your super fund to see if you or your loved one have polices that provide early access in these circumstances. If not, consider switching funds to one that does.
The application for early release of super should be made to the Australian Taxation Office (ATO). If your application is approved both you and the super fund will receive notification by mail.
Tax of between 17 – 22% is payable from funds deduced from a member who is under 60 years old. This will be reported and payable in your end of financial year tax return. There is no tax payable on deductions from members 60 and over.
Superannuation funds of the deceased person are not eligible for release for funeral expenses. However, ask the superannuation provider about associated life insurance policies. Many Australians have life insurance via their super fund. The insurance policy may provide a funeral benefit or initial payment.
Compassionate grounds: Funeral expense of a dependent
There are strict eligibility requirements which allow early release of superannuation. Payment for the death, funeral or burial of a dependent is allowed under Australian law, albeit with conditions.
The funds can only be used for the core components of the funeral, and not for the catering or venue hire. There must be no other way you can pay for the funeral, including being ruled ineligible for funeral loans.
Seek approval from the super fund for their payment of the funeral and ensure the funeral bill is sent to the fund for payment. Super funds will only pay expenses that are unpaid. They will not reimburse anyone who has already paid, even if this was paid by relatives or friends.
Provide either the dependent’s certificate of death or a letter of verification from their medical practitioner or funeral director. Also include the unpaid funeral bill.
Compassionate grounds: Terminally ill
If a person has been diagnosed with a terminal medical condition, they may access all the money in their super. The entire amount will be released. The ill person should arrange early to access their super as soon as they are aware of the terminal illness and make the necessary arrangements and payment for their funeral.
Resources
ATO: withdrawing super early