Tax On Super Payout Differs Depending On Beneficiary's Age And Type Of Fund
The Age
Friday October 17, 2008
UNDER the superannuation system that began on July 1 last year, the tax treatment of super payouts differs, depending on the age of the person receiving the benefit and the type of super fund paying the benefit.
Q. I am 53 and receive a medical retirement pension from the NSW state superannuation scheme. Am I able to make after-tax contributions to another superannuation scheme and claim them as deductions on my tax? Can I get a tax discount on this pension?A. To be able to make super contributions and claim them as a tax deduction, you must be classed as self-employed. This happens when a person is not entitled to receive any superannuation support from an employer, or they receive employer superannuation contributions but their income from salary and wages is less than 10% of their total taxable income in a financial year.From what you have stated, you are receiving a disability pension and as such should not be entitled to, or actually be receiving, the benefit of employer superannuation contributions. You could claim a tax deduction for self-employed super contributions.The tax treatment of your pension will depend on whether the benefits you are receiving are from a taxed fund or an untaxed fund. Typically, untaxed funds are those set up be government institutions that have not paid tax on the employer contributions or the income they earn.If your pension is from a taxed fund and you have been classed as permanently disabled, you will receive a 15% tax rebate. If it is from an untaxed fund, no tax rebates are received and tax is paid at the applicable marginal tax rates.Q. What are the tax implications of a 70-year-old retired person withdrawing $250,000 from a pension fund and putting it into a bank?A. The tax treatment of lump sum payments from a super fund depends on whether the fund was a taxable or an untaxed fund. If the fund is an untaxed fund, the first $1 million is taxed at 15% with the excess taxed at the top marginal rate. Where the lump sum comes from a taxed fund, as you are over 60, no tax is payable.If you are in a taxed fund, I would question why you would want to withdraw the $250,000 and put it in a bank. The only reason I can think of is that you will need to access the cash soon. If you do not need the cash any time soon, you may be better off leaving it in the super fund. In this case, you could withdraw smaller amounts as part of your pension and preserve the tax-free status of the fund paying your pension.Q. How much cash should I keep in my bank account that pays the pension from my self-managed superannuation fund? I have most of the cash in an online account that pays a higher interest.A. When a SMSF is in pension phase, it is important to manage the investment allocation of the fund to ensure there is sufficient cash to pay the pension required. This also means having some investments, such as fixed-interest deposits, that can be cashed in when needed without suffering losses of capital. Your online, high-interest paying account appears to be more than suitable.To avoid having constantly to monitor the cash position of your super fund's bank account, it should have a balance at the start of each year sufficient to fund up to six months of pension payments. This will mean you only need to check its cash position halfway through the year to make sure there is sufficient cash to pay the pension for the rest of the year.Questions can be emailed to max@taxbiz.com.au. Super Made Simple, Great Aussie Success Stories and Tax for Small Business by Max Newnham are available in book stores.
© 2008 The Age
