Australian Government, A Plan to Simplify Superannuation

Simplified Superannuation - Final Decisions

Next: Making it easier to find and transfer superannuation
Back: Other measures

Untaxed schemes

Key Points

  • The taxation treatment for lump sum benefit payments from an untaxed source will be:
    • For those aged 60 or over — a rate of 15 per cent will apply to the total of all payments up to $1 million and the top marginal tax rate above that amount.
    • For those aged 55 to 59 — a rate of 15 per cent will apply for payments up to the low rate threshold ($140,000), 30 per cent above this amount up to the upper threshold ($1 million) and the top marginal tax rate above that amount.
    • For those aged under 55, a rate of 30 per cent will apply up to the upper threshold ($1 million) and the top marginal tax rate above this amount.
  • Pension payments arising from an untaxed superannuation source to an individual over the age of 60 will be taxed at marginal tax rates with a 10 per cent offset. Payments to those below age 60 will be taxed at marginal tax rates without an offset (as is the case currently).

Benefits paid to individuals aged 60 and over (page 47)

Lump sums

The post-June 1983 untaxed element of a benefit paid from an untaxed source will be taxed at 15 per cent up to $1 million and the top marginal tax rate above that amount. The $1 million will apply on a lifetime basis to each member of the fund. It will also be indexed to AWOTE and increase in amounts of $5,000.

Pensions

Pension payments will continue to be included in assessable income and taxed at marginal rates. However, pension payments (including where the pension commenced before 1 July 2007) will be eligible for a 10 per cent taxation offset. The return of contributions which are made towards the pension from the pensioner’s own post-tax income and certain other amounts will be tax exempt once the person is aged 60 and above.

Certain pensions from an untaxed source do not include a pre-July 1983 component. This will continue under the new superannuation rules.

Reporting

Individuals will still be required to include lump sums and pensions in their tax return. Schemes will not need to report benefit payments to the ATO for RBL purposes for payments made after 30 June 2007.

Proposed arrangements for benefits paid to individuals aged under 60 (page 47)

Lump sums

For untaxed post-June 1983 elements paid to those aged 55 to 59, a rate of 15 per cent will apply for payments up to the low-rate ETP threshold ($140,000), a rate of 30 per cent above this amount up to $1 million and the top marginal tax rate above that amount. For those aged under 55, a rate of 30 per cent will apply up to $1 million and the top marginal tax rate above this amount.

Pensions

Pension payments will continue to be included in assessable income and taxed at marginal rates. Unlike payments for those aged 60 and over, they will not be eligible for the 10 per cent pension offset (until the recipient turns age 60).

Reporting

Individuals who receive benefit payments from untaxed schemes will be required to lodge a tax return and report these payments in the return as assessable income (as currently). Schemes will not need to report benefit payments to the ATO for RBL purposes for payments made after 30 June 2007.

Taxed benefits in untaxed schemes

Untaxed schemes can also pay benefits where tax has already been paid. This can include personal contributions and any earnings on those contributions and funded amounts which are taxed within the fund.

These benefits will be tax free if paid to a person aged 60 or over. The tax rules for taxed benefits for people aged less than 60 will also apply where relevant.

Death benefits

All lump sum death benefit payments will be tax free if paid to a dependant. For payments to non-dependants (irrespective of their age) the post-June 1983 untaxed element will be taxed at 30 per cent up to $1 million and the top marginal tax rate above that amount.

The taxation of death benefit payments as a reversionary pension will depend on the age of the primary and reversionary beneficiary. If the primary beneficiary was aged 60 or over on death, then payments to the reversionary beneficiary will be taxed at marginal tax rates less any deductible amount and less the 10 per cent offset (which will have been the tax treatment applying to the primary beneficiary before death). If the primary beneficiary was under age 60 at death, the pension will continue to be taxed at the reversionary beneficiary’s marginal tax rate (less any deductible amount), unless, or until, the reversionary beneficiary is aged 60 or over, in which case the 10 per cent offset will apply.

A pension will not be able to revert to a non-dependant on death; rather, death benefit payments to non-dependants will have to be made as a lump sum.

Rollovers to taxed schemes (page 49)

The transferring fund will withhold tax at the top marginal tax rate for amounts above $1 million. The first $1 million of the benefit to be transferred will be treated as a taxable contribution by the receiving fund. The remainder will form part of the exempt component in the receiving fund and not be taxed further.

Next: Making it easier to find and transfer superannuation
Back: Other measures

Miscellaneous