Commencing a Pension after 60 and Retired
Commencing a Retirement Phase Pension (SABP or R-TRIS) after the age of 60 can result in significant taxation savings. This is because you pay no tax on your share of the SMSF income and realised capital gains once you commence the Retirement Phase Pension. So whether your share of the SMSF earns $1 or $1,000,000 in income and realised capital gains, you will pay no tax if they are derived after commencing the Retirement Phase Pension. Similarly there is no tax payable on the Pension Withdrawals accessed from the SMSF after age 60. However the amount of superannuation benefits that you can use to commence a Retirement Phase Pension is limited by the Transfer Balance Cap. You should seek your own independent financial and taxation advice about what is the most appropriate action in your circumstances. For more information on how the Transfer Balance Cap works, please click here.
Case Study Example
Let's consider a Case Study demonstrating how much tax you can save by commencing a Retirement Phase Pension after the age of 60 when you are "Retired".
Example:
Barney is 61 and has recently "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 Simple Account Based Pension on 1 July 2023 and he is still within his Transfer Balance Cap. This is the appropriate Pension to commence given that Barney is "Retired". Barney withdraws 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 other Taxable Income given he has "Retired". The SMSF has generated a Taxable Income of $60,000 made up of taxable interest and dividend income and realised capital gains from the sale of shares during the financial year. Franking Credits on the dividend income is $10,000.
Case Study Analysis
| Tax Result in SMSF |
With SABP |
No SABP |
| 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 SABP |
No SABP |
| Taxable Pension Income |
$0 |
$0 |
| Tax Payable |
$0 |
$0 |
| Low Income Tax Rebate |
$0 |
$0 |
| New Low and Middle Income Tax Offset |
$0 |
$0 |
| Pension Rebate |
$0 |
$0 |
| Personal Tax Refund / (Payable) |
$0 |
$0 |
| Overall Tax Result |
With SABP |
No SABP |
| SMSF Tax Refund / (Payable) |
$10,000 |
($500) |
| Personal Tax Refund / (Payable) |
$0 |
$0 |
| TOTAL Tax Refund / (Payable) |
$10,000 |
($500) |
Case Study Result
As the above example demonstrates commencing a Simple Account Based Pension after the age of 60 has saved Barney $10,500 in tax. You should obtain your own independent financial and taxation advice about whether taking the above action is appropriate to your circumstances.
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