SuperGuide.com.au » Accessing super

I’m under 60. Does my super payout also affect my other income, and tax bill?

Trish Power — Thu, 26 Jan 2012 15:29:38 +0000

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?
If you:
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.

I retired at 59. Do I pay tax on my superannuation lump sum?

Trish Power — Tue, 24 Jan 2012 14:31:03 +0000

Q: I retired in September 2011. I’m now living on a tiny super pension since then of $640 a fortnight. In September 2011, I also received a $15,000 superannuation lump sum. The tax free component of my total superannuation is 66% and the taxable component (element taxed in the fund) is 34%. I turn 60 in February 2012. Do I have to pay any tax on the lump sum, or the super pension I’m living on, in relation to before I turned 60? I thought everything was tax free, even though I was 59, because the amounts I’ve received are so tiny. But many people I’ve spoken to seem to think I’ll have to pay some tax. All the official guidelines are so complex they are near impossible for me to fully understand.

You will need to talk to an accountant who can probably answer your query fairly quickly.

Generally speaking, anyone on a taxable income of $16,000 dollars a year would pay no tax (for the 2011/2012 year) and only a slight amount of tax if on an income slightly above $16,000 – if a pension tax rebate is active then it is highly unlikely any tax is payable.

In relation to a lump sum, any tax payable depends on whether you have taken super benefits in the past, and your age when you receive the super benefits. The tax-free component of a super benefit is always tax-free, regardless of an individual’s age. The taxable component of a lump sum is tax-free when received after turning 60, except when receiving benefits from certain public sector super funds.

The taxable component of a benefit is subject to tax when received before the age of 60, although you can access up to $165,000 (for the 2011/2012 year) of the taxable component free of tax. Note the $165,000 (indexed) is a lifetime limit and may take into account super benefits received in the past.

In relation to the impact of your lump sum on your other income, the SuperGuide article I’m under 60. Does my super payout also affect my other income, and tax bill? should assist.

You can also find other articles on SuperGuide that explain the tax treatment before and after 60.

Can I withdraw super if the bank is foreclosing on my mortgage?

Trish Power — Sat, 14 Jan 2012 01:52:17 +0000

Q: I’d like to get help with withdrawing my super as I’m in financial difficulty and I’m concerned that the bank could foreclose on my mortgage.

I’m sorry to hear that you are having difficulties. The first step in finding out whether you can access your super benefits is to talk to your super fund. Your super fund must check that you satisfy certain conditions before they can release your super funds due to financial hardship. The financial hardship provisions are explained in the article 12 legal reasons to cash your super, and your super fund should also have more detailed information to assist you.

If the bank is going to foreclose on your mortgage, then you may be able to access your super benefits under compassionate grounds. You then must apply to Centrelink. Your fund should also have information on this, and you can find additional information on compassionate grounds on the Centrelink website here.

Can I use my super to pay bills?

Trish Power — Sat, 14 Jan 2012 00:39:48 +0000

Q: I am short on funds and looking for a job. Can I apply to use some of my super to pay bills?

I’m sorry to read about your financial situation. If you look at the severe financial hardship section of SuperGuide you will find a lot of helpful information about the rules for accessing super on the grounds of severe financial hardship and on compassionate grounds.

The severe financial hardship rules require you to be on a social security benefit (you apply via your super fund). The ‘compassionate grounds’ rules however generally relate to mortgage stress or medical need. You must apply to Centrelink, and you can find additional information on compassionate grounds on the Centrelink website here.

The following SuperGuide articles are the most relevant:

I hope things turn out okay for you.

Accessing super to be a carer and work part-time

Trish Power — Fri, 13 Jan 2012 23:06:57 +0000

Q: I am aged 40 and intending to finish work and care for my elderly dad. Can I withdraw my super and can I work a few hours?

If you look at the severe financial hardship section of SuperGuide you will find a lot of helpful information about the rules for accessing super on the grounds of severe financial hardship and on compassionate grounds.

The severe financial hardship rules require you to be on a social security benefit (you apply via your super fund). I assume you will be on a carers allowance.

The ‘compassionate grounds’ rules however generally relate to mortgage stress or medical need. You must apply to Centrelink, and you can find additional information on compassionate grounds on the Centrelink website here.

The following SuperGuide articles may be of assistancet:

I wish you all the best with looking after your father.

Can you access super to pay your mortgage if you’re unemployed?

Trish Power — Fri, 13 Jan 2012 22:42:14 +0000

Q: I’m inquiring for my son who is unemployed and on Centrelink benefits. He is finding it difficult to pay his mortgage. Can he access some of his super to make payments on the house while he is unemployed as he does not want to lose his house he has had for the past 12 years?

An individual may be able to access super benefits due to severe financial hardship when they are on Centrelink benefits (apply via your super fund).

An individual may be able access super benefits on compassionate grounds if a bank is about to foreclose on the property. You must apply to Centrelink, and you can find additional information on compassionate grounds on the Centrelink website here.

Whether an individual can access super benefits early will ultimately depend on whether the super fund permits such access.

You can find a more detailed response in the articles listed below, including similar questions to your own:

I hope everything works out.

Can a single parent in financial hardship access her super?

Trish Power — Fri, 13 Jan 2012 21:13:03 +0000

Q: Just want to commend you on your website. I have a friend who has separated from her husband some years ago. As part of the deal she got half his super at the time and has $86,000 sitting in the super fund belonging to her. She has been undergoing tremendous financial hardship raising four daughters and has a property . She wants to shift her super fund from the one it is in, access some of her funds to do up a studio which can assist her in paying her mortage (she has been on Centrelink over a year), and I am assisting her to find the best super fund to place her money, firstly so she can access and secondly for the remainder to make money for her.

I’m sorry to read about your friend’s circumstances.

The rules for accessing super early are fairly strict but it is possible if a person is suffering severe financial hardship (has a specific definition) or there are compassionate grounds for release (again fairly specific).

You didn’t mention your friend’s age. If she is age 55 or over, she can also access super benefits as a transition to retirement pension – in this case she can withdraw up to 10% of her benefit each year.

The following SuperGuide articles may assist your friend:

I wish your friend all the best.

Access to super at 55

Trish Power — Fri, 13 Jan 2012 20:47:50 +0000

Q: I took a voluntary redundancy payment in 2008. I have not found a job since then and I am now married to a German and a resident of Germany, I intend to live and retire here. I have $240,000 in my Superfund and I would like to take out half of this next year when I turn 55 and the rest I’d like to leave in the fund. Is it possible for me to withdraw this amount as a lump sum?

We cannot provide specific advice but we have covered similar questions in previous articles (see links below).

Also, you will need to confirm payment options with your super fund, but generally speaking, most super funds allow partial withdrawals of super benefits (unless a defined benefit super fund, or some public sector funds).

Note that tax may be payable on the super benefits when withdrawn before the age of 60.

Should we transfer our super to a bank account to avoid fees?

Trish Power — Fri, 13 Jan 2012 20:18:27 +0000

Q: My husband and I are retired. We receive the bare pension and health card and we have our super in a Family Super fund account in a bank. We are both over 65 and have a financial adviser who does our super at the end of the year. He charges a fee then sends it to an auditor, and he charges a fee. We have no investments so there is very little work to be done but these fees are not small. Our daughter says we should take it out of super and put in netbank saver account. Would this be wise and do we have to pay tax on it?

I suggest you visit an accountant to do a tax assessment for you.

The tax-effectiveness of super depends on the level of income that you receive in retirement. A couple can earn up to $54,000 tax-free outside the super environment due to the Senior Australians Tax Offset (SATO).

Accessing super due to severe financial hardship

Trish Power — Tue, 10 Jan 2012 06:51:26 +0000

Q: I would like to know how I could go about accessing my super early on the grounds of extreme hardship. I have 2 children and I’m a single parent. I am a NZ citizen and have no entitlement to Centrelink payments. this is only a temporary setback but I am very desperate and have no where to turn. Hope you can help.

I’m sorry to read about your circumstances. The first step is to check whether your super fund permits early access to super benefits. Most super funds do permit such access but some do not.

If you apply under severe financial hardship, then you apply directly to your super fund. You will need to satisfy certain conditions.
If you’re eligible for early release on compassionate grounds, then you apply to the government agency, known as APRA. Again, you need to satisfy certain conditions.

The following articles explain the rules in more detail:

Accessing super early: Is it possible to withdraw super to pay overdue rent? (explains compassionate grounds)
Accessing super early: Unemployed and in financial hardship (explains rules for severe financial hardship access)

Also this link from Centrelink will also give you more information.

I’m 60 and not working. Can I access my super?

Trish Power — Tue, 10 Jan 2012 02:01:04 +0000

Q: Hi, I have recently turned 60 and I would like to access my super. I have not worked mid July 2011. Is there any reason why I would not be able to withdraw on my super? I have not been getting unemployment benefits.

You will need to confirm your entitlements with your super fund but the general rules applicable to an individual aged 60 or over are:

Under normal circumstances (that is, where a person chooses to retire rather than forced to retire due to ill-health), an individual aged 60 or over, is taken to have retired if an employment arrangement ends, and/or the trustee of the super fund is satisfied that the individual intends never again to become gainfully employed, either on a full-time or part-time basis. For a trustee to be satisfied, usually the super fund requires a retirement declaration.

Note: In the situation where an individual turns 60 AFTER terminating an employment agreement, the super benefits are not automatically available. A trustee has to be satisfied that the individual intends never again to become gainfully employed, either on a full-time or part-time basis. The super fund generally requires a fund member to complete a retirement declaration. An individual however, can still work a handful of hours each week under this rule.

The key difference between the two scenarios above is: that turning 60 while employed then terminating employment, triggers a condition of release. In comparison, turning 60 after terminating employment means the individual must satisfy an alternative condition of release – typically ‘retirement’.

If an individual doesn’t want to sign a retirement declaration because he or she is looking for work, a fund member currently aged 55 or over can access super benefits via a transition-to-retirement pension (TRIP), or consider other conditions of release (see article Accessing super early: 12 legal reasons to cash your super).

An extract of the relevant regulation is set out below, but check your specific circumstances with your super fund since we are an information site rather than an advisory centre.

Sub-regulation 6.01 (7)
For the purposes of Schedule 1, the retirement of a person is taken to occur:
(a) in the case of a person who has reached a preservation age that is less than 60 — if:
(i) an arrangement under which the member was gainfully employed has come to an end; and
(ii) the trustee is reasonably satisfied that the person intends never to again become gainfully employed, either on a full-time or a part-time basis; or
(b) in the case of a person who has attained the age of 60 — an arrangement under which the member was gainfully employed has come to an end, and either of the following circumstances apply:
(i) the person attained that age on or before the ending of the employment; or
(ii) the trustee is reasonably satisfied that the person intends never to again become gainfully employed, either on a full-time or a part-time basis.