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.