Provides information for taxed super funds which begin to pay an income stream (not a death or disability income stream) after 1 July 2007
From 1 July 2007, a superannuation benefit is made up of a:
- tax free component, and
- taxable component which includes an element
- taxed in the fund, and/or
- untaxed in the fund.
Super funds will need to calculate these components for each benefit that is paid. The proportioning rule is generally used to calculate the tax-free and taxable components of a benefit.
When a super benefit is paid from a superannuation interest, the benefit will include both tax-free and taxable components calculated in the same proportion that these components make up the total value of the superannuation interest.
The tax-free component of a superannuation interest is the total value of the following segments the:
- contributions segment, and
- crystallised segment.
The contributions segment generally includes all contributions made from 1 July 2007 that have not been included in the assessable income of the fund. Typically these would be a member's personal contributions not claimed as in income tax deduction.
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Roll-over super benefits are regarded as contributions. However, the taxable component of a roll-over super benefit is not included in the contributions segment.
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The crystallised segment includes the following existing components of an interest that are consolidated into the tax-free component:
- the concessional component
- the post-June 1994 invalidity component
- undeducted contributions
- the capital gains tax (CGT) exempt component, and
- the pre-July 83 component.
The crystallised segment is calculated by assuming that an eligible termination payment (ETP) representing the full value of the superannuation interest is made in respect of the member just before 1 July 2007.
The taxable component of the superannuation interest is calculated by subtracting the tax-free component from the total value of the superannuation interest.
The taxable component of a superannuation interest in a taxed fund normally consists solely of an element taxed in the fund.
When a super benefit is paid from a superannuation interest, the benefit will include both tax-free and taxable components calculated in the same proportion that these components make up the total value of the superannuation interest.
Example 1 Applying the proportioning rule when paying a benefit
Peter is 56 and his super income stream started on 1 August 2007. When Peter's income stream began, the total value of his superannuation interest was $400,000. The interest includes a tax-free component of $100,000 made up solely from the crystallised segment, and a taxable component of $300,000.
Peter receives a super income stream benefit of $2,000 on 1 September 2007.
Step 1:
Calculate the tax-free and taxable proportions of Peter's superannuation interest when the income stream began:
Tax free component = $100,000 = 25%
Value of the interest $400,000
The taxable percentage of Peter's superannuation interest would therefore be 75%
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Step 2:
Apply that proportion to calculate the tax free component of Peter's super income stream as follows:
$2,000 x 25% = $500.
The taxable component of this super income stream is $1,500 ($2,000 -$500).
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Age of member
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Tax-free component
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Taxable component
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60 years and over
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Funds are not required to withhold any tax from a payment and are not required to issue a payment summary.
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If a member turns 60 during the year
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No tax withheld.1
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Withhold tax from the amount paid prior to the member turning 60 years.
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Preservation age but under 60
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No tax withheld.2
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Withhold tax.
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Below preservation age
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No tax withheld.3
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Withhold tax.
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- Funds should use the appropriate tax table depending on the period for which the income stream covers i.e. weekly, fortnightly or monthly.
- If a member has not provided their tax file number, withhold tax at the rate of 46.5% from the taxable component.
- For members who turn 60 during the year or who are at preservation age but under 60, the member is entitled to 15% of the taxable component as a tax offset (paid prior to turning 60), the amount of tax to be withheld is adjusted to take into account the tax offset.
- If a lump sum is paid, then to the extent that this lump sum represents super income stream amounts that accrued in a previous year or years , the tax-free and taxable components of the lump sum should be included at the relevant Lump sum in arrears labels.
To obtain a copy of our publications or for more information phone:
- 1300 720 092 to order a publication, or
- 13 10 20.
If you do not speak English well and want to talk to a tax officer, phone the Translating and Interpreting Service on 13 14 50 for help with your call.
If you have a hearing or speech impairment and have access to appropriate TTY or modem equipment, phone 13 36 77. If you do not have access to TTY or modem equipment, phone the Speech to Speech Relay Service on 1300 555 727.
1 For payments made prior to a member turning 60 years the amounts of the:
- tax-free component
- taxable component
- tax offset, and
- tax withheld (from those payments made prior to the member turning 60)
are included on the payment summary at the relevant labels.
2 The amounts of the:
- tax-free component
- taxable component
- tax offset, and
- amount of tax withheld
are included on the payment summary at the relevant labels.
3 The amounts of the
- tax-free component
- taxable component, and
- tax withheld
are included on the payment summary at the relevant labels.
Last Modified: Thursday, 6 September 2012