Tax treatment of benefit payments
Tax treatment of benefit payments
Benefits paid after turning 60
If you are aged 60 or more, superannuation benefits (including lump sums or pension payments) that you receive from the Fund are tax free.
Benefits paid before turning 60
If you are under 60, the tax treatment depends on your age and on the benefit's tax components.
Lump sum and pension payments from superannuation are generally made up of two components, tax free and taxable.
Whenever you withdraw or rollover a lump sum from your account, the tax components of the lump sum will be determined under the proportioning rule based on the tax free and taxable components of your account at the time of payment.
When you commence a pension, the payments from your pension account (including pension payments and lump sums) are paid in proportion to the tax free and taxable components at the time the pension commenced.
Generally, additional payments made from a pension account will be treated as a pension payment unless you specify otherwise. You may elect for these payments to be treated as a lump sum payment using the Withdrawal form.
The general tax treatment of lump sum benefits paid to you is summarised in the table below.
Tax treatment of lump sum withdrawals and pension payments
Taxpayer’s age | Tax free component | Taxable component |
Under preservation age: | ||
Lump sum | Tax free | 21.5%1 |
Pension payment | Tax free | Marginal tax rate plus Medicare levy2 |
Preservation age to age 59 (inclusive): | ||
Lump sum | Tax free | Amount up to low rate cap ($160,000 in 2010/2011)2,3 - 0% |
| Amounts over low rate cap – 16.5%1,3 | |
Pension payment | Tax free | Marginal tax rate plus Medicare levy less 15% tax offset |
Age 60+: | ||
Lump sum | Tax free | Tax free |
Pension payment | Tax free | Tax free |
1 This rate includes the Medicare levy of 1.5 per cent.
2 A pension that qualifies as a disability superannuation benefit is taxed at the recipient's marginal tax rate (plus Medicare levy) less a 15 per cent tax offset.
3 The low rate cap is indexed to AWOTE and rounded down to the nearest $5,000.
In some cases, superannuation benefits are taxed under special arrangements. For example, a benefit that qualifies as a disability superannuation benefit may qualify for additional tax concessions. Lump sums paid to you because of a terminal medical condition are tax free in certain circumstances. If you are a temporary resident and you withdraw a lump sum following your permanent departure from Australia, special (higher) tax rates apply. An income stream that you receive from the Fund under a disability income insurance policy will generally be taxed as ordinary income at your marginal rate and the Trustee may be required to withhold PAYG tax.
Tax treatment of UK transfer amounts
If your account includes a UK transfer amount and you withdraw, rollover or commence a pension, including payments to your beneficiaries upon your death, there may be UK tax consequences. If at the time of the withdrawal, rollover or pension commencement, you are considered a UK tax resident at any point in the current or previous five UK tax years, we have an obligation to report the amount to HMRC and you may be subject to additional UK taxes under UK tax law. In these situations, any additional tax is determined by HMRC and is your personal liability. The regulation of UK transfer amounts can be complex and we recommend you consult your adviser.
Part A of the Avenue Retirement Service PDS