Q: I have tried to phone the ATO re this query but can’t get through! Could you tell me the answer to this question? I turn 55 soon and I am eligible for a super payout of $165,554 next month of which only the $554 is taxable at 16.5%. However I still intend to keep working at my $58,000 a year job and wondered how this will affect the tax payable on my super.
We are an information site rather than an advisory site, and any tax questions need to be confirmed with a registered tax agent, such as accountant. Even so, I can offer you some general comments on the questions that you ask.
1. An individual can only access super benefits if they reach preservation age (currently 55) AND retire. If they don’t fall into this category then they must satisfy another condition of release to access super benefits. I explain the main conditions of release in the article 12 legal reasons to cash your super.
2. If your super benefits are classified as ‘unrestricted non-preserved’, then it is possible to access such benefits at any time. Some individuals who have been super fund members before 1999 may have some benefits that fall into this category.
3. Note that the low-rate cap for lump sum payments has increased to $165,000 for the 2011/2012 year (from $160,000 in the 2010/2011 year and $150,000 in the 2009/2010 year). If an individual is under the age of 60 and aged 55 or over, then the taxable component of any lump sum benefits within this cap are exempt from tax. The cap is a lifetime cap, rather than a cap for the taxable component of each specific lump sum payment. The tax-free component of a super benefit is always tax-free on payment, regardless of age.
4. The tax payable on super benefits is fixed but the benefit forms part of an individual’s assessable income. The ATO uses tax offsets to ensure the tax payable on the benefits is no more than the fixed benefit tax rate. For example, effective tax rate of 0% for the taxable component of lump sum benefit payments up to $165,000 (for the 2011/2012 year) and then the balance of the taxable component of the lump sum benefit is taxed at 16.5%. (The one exception is where you receive benefits from certain public sector funds and then the first $165,000 of the taxable component is taxed at 16.5%, and then the amount above $165,000 but below $1.205 million is taxed at 31.5% and the balance above $1.205 million is taxed the highest marginal tax rate (46.5%).)
5. According to the ATO your lump sum benefit will be treated as follows (see extract below or click on this ATO link).
How will the taxed element of my lump sum super benefit be taxed?
- are between your preservation age and 60, and
- receive a lump sum super benefit that includes or consists entirely of a taxed element
The taxed element is:
- included in your assessable income, and
- subject to tax at your marginal rates (plus Medicare levy).
You will receive tax offsets to ensure that:
- the rate of tax is 0% on any amount that comes within the low rate cap ($165,000 for the 2011-12 income year), and
- you pay no more than 15% tax (plus Medicare levy) on any amount above the low rate cap in an income year.
The low rate cap amount for 2011-12 is $165,000. It is indexed annually in accordance with average weekly ordinary time earnings. For the annual low rate cap amounts refer to Key superannuation rates and thresholds. If you receive one or more lump sum super benefits in an income year, you need to reduce your low rate cap amount (but not below zero) for the next income year by the total of the amounts:
- that are included in your assessable income for the first year (that is, the total taxable components of those lump sums), and
- for which you received a tax offset for the first year.
If you receive a disability superannuation benefit as a lump sum, your tax-free component is increased to broadly reflect the period where you would have expected to have been gainfully employed. The tax-free component of your benefit is always not assessable and not exempt income, that is, it is tax-free.
Example [updated by SuperGuide]
Adapting an example from the ATO website, here’s how the super benefit is treated for tax purposes.
Michael is 56 and receives for the first time a lump sum super benefit of $300,000 on 25 July 2011. His super fund tells him that this amount consists of a tax-free component of $100,000 and a taxable component of $200,000. The taxable component consists entirely of a taxed element. Michael will pay no tax on the tax-free component of $100,000. He will include the taxable component of $200,000 in his personal income tax return as part of his assessable income. This amount will be subject to his marginal tax rate (plus Medicare levy). However he will receive tax offsets to ensure that he pays no tax on $165,000 (the low rate cap amount for 2011-12) and 15% tax (plus Medicare levy) on the remaining $35,000.
Again, we are an information site and I recommend that you chat to an accountant about your tax position. I hope this helps.