The anti-detriment deduction was introduced under section 295- 485 of the ITAA to provide compensation to a spouse, former spouse (via the Estate) and children of such members by allowing them the opportunity to receive an increased death benefit by way of an additional lump sum payment from the fund. This payment was intended to replace the reduction in any lump sum payment caused by the contributions tax. It only applies to benefits paid as a lump sum. Benefits paid as pension income streams are not eligible.
The anti detriment payment is based on a calculation, an amount of lump sum payment, sourced from the 'taxable component', paid to the relevant beneficiary. If however, the fund holds 'non-taxable' component (perhaps via recontribution of the fund components, converting taxable to non-taxable), then the calculation will provide a nil result.
Not all APRA funds allow anti detriment payments. Virtually all SMSFs do however it can be difficult for SMSFs to fund the payment. This is because the compensation is provided via a tax deduction mechanism which requires the SMSF to make the payment before it can be recouped from the ATO. The recoupment is via tax savings. In addition the increased death benefit or anti detriment payment must be made from a source other than the deceased member's account.
The tax deduction available to the fund is the anti-detriment payment grossed up to reflect the 15% tax deduction.
The problem is that whilst the payment cannot be sourced from the deceased's member account it must be made before it can be recouped.
There are 3 payment sources:
An anti-detriment payment must be paid in full. A partial payment is not allowed.
If an anti-detriment payment is made then the income tax deduction will attach to the fund for the benefit of current and future members. This includes all assessable income both earnings and contributions tax. Care should be taken where a member is in pension, as the deduction may be ineffective.