- Within SMSF
- Pension Withdrawals
- Lump Sum Withdrawals
- Pension v Lump Sum
There are significant superannuation regulation changes that may affect your pension decisions:
- The pension transfer balance cap (TBC) increases from $1.7 million to $1.9 million after 1 July 2023.
- The 50% Covid-19 reduction in superannuation minimum drawdown requirements ceases to apply after 1 July 2023.
- The lump sum low rate cap increases from $225,000 to $230,000 in the 2023 FY and to $235,000 in the 2024 FY.
- ALL SMSFs are required to report most events that affect the member's TBC within 28 days after the end of the quarter in which the event occurs after 1 July 2023. A transition period applies for the unreported events that occurred before 30 September 2023, the SMSF has until 28 October 2023 to report them.
We are currently updating the contents on our website progressively to reflect the above changes. In the meantime, please be mindful of the changes when making pension decisions.
Lump Sum Withdrawals
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 are aged between preservation age and 64 and "Retired", regardless of whether you have commenced a Pension. You cannot make Lump Sum withdrawals from your SMSF if you are aged between preservation age and 64 and are NOT "Retired". This is the case even if you have commenced a TRIS.
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 |
If you are under your preservation age, you cannot access your Super Benefit unless you have an unrestricted benefit or are eligible for early access. For more information on the eligibility for early access, please click here.
Lump Sum Withdrawals where you have commenced a Pension
You can make Lump Sum withdrawals in addition to accessing Pension income from the SMSF, when you reach age 65 or alternatively when you are aged between preservation age and 64 and "Retired". In this case there is no limit to the amount of Lump Sum withdrawals you can make and can take all your Super Benefit if desired.
If you are aged between preservation age and 64 and NOT "Retired" you can only access your Super Benefit as a TRIS and pension payments are capped at 10% of your Pension Balance.
We caution that Pension withdrawals and Lump Sum withdrawals are two different withdrawal types and different rules apply. For more information on the difference between Pension withdrawals and Lump Sum withdrawals, please click here.
Tax on Lump Sum Withdrawals after Age 60
To the extent that a Member is allowed to make Lump Sum withdrawals, there is no tax payable on Lump Sum withdrawals after the age of 60.
Tax on Lump Sum Withdrawals between Preservation Age and 59
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 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 |
|---|---|
| 2021-22 | $225,000 |
| 2020-21 | $215,000 |
| 2019-20 | $210,000 |
Calculating the Tax on Lump Sum Withdrawals 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: Total of the Taxable and Tax Free Components.
Step 4: Calculate the Tax Free Component percentage equal to Step 1 divided by Step 3
Step 5: Calculate the Taxable Component percentage equal to Step 2 divided by Step 3
Step 6: Multiply the Lump Sum withdrawal by the Tax Free percentage at Step 4. The result is Tax Free.
Step 7: Multiply the Lump Sum withdrawal by the Taxable percentage at Step 5. The result is taxed at:
-The amount up to the low rate cap amount is tax free.
-The amount above the low rate cap amount is taxed at 17%
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 the2021-2022Financial Year and are eligible to do so. In this case 80% of the withdrawal amount 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 $225,000 of your Taxable Component is tax free.
The Taxable Component above $225,000is taxed at 17%
In the above example as the taxable portion of the Lump Sum withdrawal of $20,000 is less than $225,000, it is tax free.
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