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Case Study: Not Retired & Aged 60+


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Commencing a Pension after 60

Commencing a Pension after the age of 60 can result in significant taxation savings. This is because you pay no tax on your SMSF income and realized capital gains once you commence the Pension.  So whether your SMSF earns $1 or $1,000,000 in income and realized capital gains, the SMSF will pay no tax if they are derived after commencing the Pension.  Similarly there is no tax payable on the Pension Withdrawals accessed from the SMSF after 60. 

 
 
Case Study Example

Let's consider a Case Study demonstrating how much tax you can save by commencing a Pension after the age of 60 when you are NOT "Retired".

Example:

Barney is 61 and is still working.  That is he is NOT "Retired".  Barney has a Super Benefit of $1,000,000.  His Super Benefit is broken down into a "Taxable Component" of $800,000 (built up from Employer Contributions) and a Tax Free Component of $200,000 (built up from Personal Non Concessional Contributions).  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 Transition to Retirement Pension (TRAP) on 1 July, 2015.  This is the appropriate Pension to commence given that Barney is NOT "Retired".  Barney must access 4% of his Super Benefit as a Pension, that is $40,000.  The Tax Free portion of the Pension Income is 20% (i.e. $8,000) and the Taxable portion of the Pension Income is 80% (i.e. $32,000). 

Barney has no income other than his salary income from working of $100,000.  The SMSF has generated a Taxable Income of $60,000 made up of taxable interest and dividend income and realised capital gains from the realized sale of shares during the financial year.  Franking Credits on the dividend income Barney total $10,000.

 
 
Case Study Result

Tax Result in SMSF With Pension No Pension
SMSF Income $60,000 $60,000
Dividend Gross Up $10,000 $10,000
Total Income $70,000 $70,000
Tax on SMSF Income $0 ($10,500)
Franking Rebate $10,000 $10,000
SMSF Tax Refund / (Payable) $10,000 ($500)

 

Tax Position in Personal Name With Pension No Pension
Salary Income $100,000 $100,000
Taxable Pension Income $0 $0
Total Taxable Income $100,000 $100,000
Tax Payable $26,447 $26,447
Low Income Tax Rebate $0 $0
Pension Rebate $0 $0
Personal Tax Refund / (Payable) ($26,947) ($26,947)

 

Overall Tax Result With Pension No Pension
SMSF Tax Refund / (Payable) $10,000 ($500)
Personal Tax Refund / (Payable) ($26,947) ($26,947)
TOTAL Tax Refund / (Payable) ($16,947) ($27,447)

 

 
 
Case Study Result

As the above example demonstrates commencing a TRAP after the age of 60 has saved Barney $10,500 in tax.  This is an annual tax savings and demonstrates the taxation savings available by commencing a TRAP after age 60!

 
 
Interactive Pension Analysis

To demonstrate how the above analysis may change with changes in the variable inputs we have devised an Interactive Calculator for our clients.  The Interactive Calculator allows you to quantify the taxation savings available to you by commencing a TRAP after age 60, using your own personal circumstances.  To view our Interactive Calculator, please visit our Interactive Pension Analysis here to and see how much tax you can save!

 
 
Apply Now

To establish a TRAP simply visit our Online Application Form here.