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Questions & Answers - Access Super Benefit


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+ What is “Preservation Age”?

Generally, you must reach preservation age before you can access your super. Use the following table to work out your preservation age.

Date of birth Preservation Age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 01 July 1964 60
+ When can I access my Super Benefit?

If you are aged over 65 or aged between Preservation Age and 64 and "Retired" you can access your Super Benefit either as a Simple Account Based Pension (which has significant tax concessions) or as a Lump Sum. If you are aged between Preservation Age and 64 and NOT Retired you can access your Super Benefit as a Transition to Retirement Pension (TRAP) only.

+ What is "Retirement"?

The definition of "Retirement" varies depending on when you cease work.

If you cease employment after age 60, "Retirement" means you simply cease your employment. In this case the intention to return to the workforce is irrelevant. This means that you can essentially return to work soon after ceasing your employment after age 60, but you will still deemed to be retired and able to commence a Simple Account Based Pension. The definition of retirement in this case is less stringent than for those under 60. A "Retirement" Declaration must be signed if you cease employment after age 60 and can be found here.

If you cease employment between Preservation Age and 59, "Retirement" means that at the time you ceased employment you never intended to work again either on a full-time or part-time basis (defined as more than 10 hours per week). This declaration must be made to your SMSF and is made at the time you cease employment. It is noted that whilst a person who ceases employment when aged between Preservation Age and 59 never intends to work again, they may ultimately do so. This will not alter the person's status as being retired enabling them to have access to their Super Benefit notwithstanding they have returned to work. A "Retirement" Declaration that must be signed if you cease employment aged between Preservation Age and 59 can be found here.

+ What is a Pension?

A Pension (either a Simple Account Based Pension or TRAP) simply means that periodically (eg each month or other period you nominate) cash is transferred from your SMSF Bank Account to your Personal Bank Account to fund your living expenses. For more about Pensions click here.

+ What is the Minimum Pension I must withdraw?

If you do decide to commence a Pension from your SMSF, then you must take a Minimum Pension amount each year. Further details about the Minimum Pension amount can be found in the Pension Section of our website here.

+ What is the Maximum Pension I must withdraw?

If you do decide to commence a Pension from your SMSF, there is no Maximum Pension Amount if you are aged over 65 or aged between Preservation Age and 64 and "Retired". If you are aged between Preservation Age and 64 and are NOT "Retired" you can withdraw a Maximum of 10% of your Super Benefit as a Pension.

+ What Tax is payable on Pension Withdrawals when aged over 60?

Nil. The Pension Income that is paid to you by the SMSF each year after you commence a Simple Account Based Pension or TRAP is tax free after you have turned 60.

+ What Tax is payable on Pension Withdrawals when aged between Preservation Age and 59?

This depends on the amount of the Pension. 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 Pension 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 Preservation Age and 59, the "Tax Free" Component of the Pension withdrawal is tax free. The "Taxable" Component of the Pension withdrawal is taxed at the Members marginal tax rate less a 15% "Pension Rebate". As a general rule of thumb, assuming that the Pension is the Members sole source of income, then the Member can generally take approximately $40,000 per annum as Pension income tax free. Some tax may apply on Pension income drawn above this amount.

Example:

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 Pension withdrawals will be tax free and 20% will be taxable where the pension withdrawals are made between Preservation Age and 59.

Assume you draw the minimum pension of 4% per annum on your $500,000 Super Benefit (ie $20,000). The Pension withdrawn of $20,000 will be 80% tax free (ie $16,000) and 20% taxable (ie $4,000). In addition you will be allowed a 15% "Pension Rebate" on the taxable portion of the Pension withdrawn, further reducing your tax liability.

In the above example assuming you are on the 34.50% personal marginal tax rate, you would be assessable on the $4,000 taxable portion of the Pension withdrawn at 34.50%, resulting in $1,380 in tax. Given you also receive a 15% "Pension Rebate" on the taxable portion of the Pension withdrawn of $4,000 (i.e. 15% of $4,000 or $600); the tax liability is further reduced to only $780. This means you pay tax of $780 on a $20,000 Pension withdrawal in the above example.

 

+ How is Tax calculated on Pension Withdrawals when aged between Preservation Age and 59?

The process to calculate the tax on Pension Withdrawals paid to a Member who is aged between Preservation Age and 59 is as follows:

Step 1: Determine the Tax Free Component of your Super Benefit
Step 2: Determine the Taxable Component of your Super Benefit
Step 3: The Total of the Taxable and Tax Free Components make up your Total Super Benefit
Step 4: Calculate the Tax Free Component percentage equal to Note 1 divided by Note 3
Step 5: Calculate the Taxable Component percentage equal to Note 2 divided by Note 3
Step 6: Multiply the Pension Payment by the Tax Free percentage at Note 4. The result is Tax Free.
Step 7: Multiply the Pension Payment by the Taxable percentage at Note 5. The result is taxed at the Members tax rate less a 15% Pension Rebate.

+ What is a Lump Sum Withdrawal?

The alternative way to access your Super Benefit is as a Lump Sum Withdrawal. A Lump Sum Withdrawal is simply an amount accessed from your SMSF that is not a Pension Payment. You can make lump sum withdrawals whenever you like from your SMSF once you turn 65 or alternatively when you are aged between Preservation Age and 64 and are "Retired". You cannot make Lump Sum Withdrawals if you are under 65 if you are NOT Retired.

+ What Tax is payable on Lump Sum Withdrawals when aged over 60?

Nil. Lump Sum Withdrawals accessed after the age of 60 are tax free.

+ What Tax is payable on Lump Sum Withdrawals when aged between Preservation Age and 59?

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.

Income Year Amount of cap
2017–18 $200,000
2016–17 $195,000
2015–16 $195,000

Example:

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 2017-2018 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 $200,000 of your Taxable Component is tax free.
The next $200,000 of your Taxable Component is taxed at 17%

In the above example as the taxable portion of the Lump Sum of $20,000 is less than $200,000, 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 $200,000, then it may be prudent to defer accessing larger lump sum withdrawals until age 60 when the lump sum withdrawals are tax free.

+ How is Tax Calculated on Lump Sum Withdrawals when aged between Preservation Age and 59?

The process to calculate the tax on Lump Sum Withdrawals paid to a Member who is aged between Preservation Age and 59 is as follows:

Step 1: Determine the Tax Free Component of your Super Benefit
Step 2: Determine the Taxable Component of your Super Benefit
Step 3: The Total of the Taxable and Tax Free Components make up your Total Super Benefit
Step 4: Calculate the Tax Free Component percentage equal to Note 1 divided by Note 3
Step 5: Calculate the Taxable Component percentage equal to Note 2 divided by Note 3
Step 6: Multiply the Lump Sum Withdrawal by the Tax Free percentage at Note 4. The result is Tax Free.
Step 7: Multiply the Lump Sum Withdrawal by the Taxable percentage at Note 5. The result is taxed at:

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    The amount up to the low rate cap amount is tax free.
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    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.

Income Year Amount of cap
2017–18 $200,000
2016–17 $195,000
2015–16 $195,000
+ Can you choose to take withdrawals from an SMSF as a Pension or Lump Sum when aged between Preservation Age and 59?

When you are aged over 60 all withdrawals, whether they are Pension or Lump Sum withdrawals are tax free. However when aged between preservation age and 59 Pension and Lump Sum withdrawals may be subject to tax and the tax will differ depending on the withdrawal type you make.

Given the difference in the taxation treatment when accessing monies from your SMSF as a Pension or Lump Sum when you are aged between Preservation Age and 59, it is sometimes preferable to treat withdrawals as a combination of both a Pension and Lump Sum, rather than solely as a Pension, once you commence a Simple Account Based Pension between Preservation Age and 59. It is important to understand that if you have commenced a Simple Account Based Pension it means you are retired and this is a precondition to being able to take Lump Sum withdrawals.

Remember 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 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 withdrawal is tax free. The "Taxable" Component of the withdrawal is taxed differently depending on whether it is a Lump Sum or a Pension. That is the "Taxable" Component of the Pension withdrawal is taxed at the Members marginal tax rate less a 15% "Pension Rebate".Alternatively the “Taxable” amount up to the low rate cap amount of a Lump Sum withdrawal is tax free and the balance is taxed at 17%.

Example:

Barney is 58 and has a Super Benefit of $1,000,000 made up as follows:

"Taxable" Component: $800,000
"Tax Free" Component: $200,000
Total Super Benefit: $1,000,000

In the above example this means that 80% ($800,000 / $1,000,000) of Barney's Super Benefit is taxable and $20% ($200,000 / $1,000,000) is tax free. Barney commences a Simple Account Based Pension on 1 July and must access 4% of his Super Benefit as a Pension (ie $40,000).

Assume Barney decides to access $150,000 from his SMSF in the 2017-2018 Financial Year. If the entire amount was treated as a Pension withdrawal, Barney would pay a whopping $16,432 in tax. That is he would be taxed on 80% of the Pension Income of $150,000 (i.e. $120,000). Tax on $120,000 is $34,432. After applying a 15% "Pension Rebate" of $18,000 ($120,000 x 15%) the net tax payable is $16,432. If Barney alternatively had chosen to take the Minimum Pension of $40,000 only and treat the additional withdrawal of $110,000 as a Lump Sum Withdrawal, the tax result would be completely different.

That is on the $40,000 Pension withdrawal, Barney would be taxed on 80% of the Pension Income (i.e. $32,000). Tax on $32,000 is $3,262. After applying a 15% "Pension Rebate" of $4,800 ($32,000 x 15%) the net tax payable is $0. It is noted that if the Pension Rebate creates a refund the refund is lost.

On the remaining $110,000 Lump Sum withdrawal, Barney would be taxed on 80% of the Lump Sum Withdrawal (i.e. $88,000). Given that Barney can access the first $200,000 (i.e. the low rate cap amount for the 2017/2018 Financial Year) in Lump Sum withdrawals tax free, the entire $110,000 would be tax free.

This means that Barney's withdrawal of $150,000 is now completely tax free (i.e. a Pension Withdrawal of $40,000 that is tax free plus a Lump Sum Withdrawal of $110,000 that is tax free). This simple strategy has saved Barney $16,432.

+ Do I have to access my Super Benefit when I Retire or after I turn Preservation Age?

No. You are not required to access your Super Benefit as either a Pension or a Lump Sum Withdrawal regardless of your age. The choice is entirely yours. In fact you can let your Super Benefit accumulates in the super environment indefinitely. It is noted it may be tax advantageous to commence accessing your Super Benefit when aged over Preservation Age as a Simple Account Based Pension (SABP) when “Retired”. This is because when you commence an SABP you never pay tax on the income and capital gains on your SMSF Investments. Similarly any monies you access as a Pension after 60 will be also be tax free. Some tax may be payable on withdrawals where you are under 60. You will however need to assess your own individual circumstances to determine if a Simple Account Based Pension should be commenced before the age of 60.

+ Can I Access my Super Benefit before Preservation Age?

Usually No. If you are under Preservation Age you cannot access your Super Benefit unless you have an Unpreserved Super Benefit. In most cases most Australians who are under Preservation Age will not have any Unpreserved Super Benefit and will have to wait until Preservation Age, in order to begin to access their Super Benefit. It is however noted that it may be possible to access some or all of your Super Benefit when you are under Preservation Age under various other provisions as detailed below.

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    Hardship Grounds
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    Compassionate Grounds
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    Terminal Illness
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    Permanent Incapacity
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    Temporary Incapacity

The above are discussed here.