This depends on the amount of the Lump Sum Withdrawal made. Your Super Benefit is made up of two components, namely a Tax Free Component and a Taxable Component. The Tax Free Component typically comes from after tax personal Non Concessional Contributions made by you over time. The Taxable Component typically comes from Concessional Contributions made by you over time which include Employer Contributions and Salary Sacrifice Contributions. Any Lump Sum Withdrawals must be paid in the same proportion as the Tax Free and Taxable Components of the Member's interest in the SMSF. This requirement is known as the "Proportioning Rule".
Under the "Proportioning Rule" and where the Member is aged between age Preservation Age and 59, the "Tax Free" Component of the Lump Sum withdrawal is tax free. The "Taxable" Component of the Lump Sum withdrawal is taxed as follows:
The amount up to the low rate cap amount is tax free.
The amount above the low rate cap amount is taxed at 17%
Low rate cap amount
The application of the low rate threshold for super lump sum payments is capped. The low rate cap amount is reduced by any amount previously applied to the low rate threshold.
||Amount of cap
As an example assume you have a Super Benefit of $500,000 made up as follows:
"Tax Free" Component: $400,000
"Taxable" Component: $100,000
Total Super Benefit: $500,000
In this example your "Tax Free" percentage is 80% ($400,000/$500,000) and your "Taxable" percentage is 20% ($100,000/$500,000). Under the "Proportioning Rule" this means that 80% of your Lump Sum withdrawals will be tax free and 20% will be taxable where the Lump Sum withdrawals are made between Preservation Age and 59.
Assume you decide to access $100,000 as a lump sum withdrawal in the 2018-2019 Financial Year and are eligible to do so. In this case an amount of 80% will be tax free and the balance will be taxable, namely 20% of the $100,000 or $20,000. The $20,000 assessable amount is then taxed as follows:
The First $205,000 of your Taxable Component is tax free.
The Taxable Component above $205,000 is taxed at 17%.
In the above example as the taxable portion of the Lump Sum of $20,000 is less than $205,000, it is tax free. If you are contemplating large lump sum withdrawals before age 60 and the taxable portion of the Lump Sum is above $205,000, then it may be prudent to defer accessing larger lump sum withdrawals until age 60 when the lump sum withdrawals are tax free.