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  • Pay as you go withholding for military superannuation payments

    Your fortnightly invalidity payments are subject to the pay as you go (PAYG) withholding system. The amount withheld depends on a range of factors including whether your payments are:

    • super income stream benefits, or
    • super lump sum payments.

    Note: If you are affected by a recent Full Federal Court decision, the PAYG amount withheld from your fortnightly invalidity payments may change.

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    PAYG withholding process

    When you lodge your yearly tax return, we calculate how much tax you owe (your end-of-year tax liability) based on the income you received during the year.

    PAYG withholding refers to the amount Commonwealth Superannuation Corporation (CSC) withholds from your fortnightly invalidity payments. These amounts are credited towards your end-of-year tax liability.

    The PAYG withholding process for military super benefits is:

    • CSC withholds PAYG withholding amounts from the payments they make to you each fortnight. They then send us those amounts.
    • You lodge your tax return at the end of the financial year and we calculate your tax liability.
    • We take the PAYG withholding amounts paid throughout the year into account and credit them towards your tax liability.
    • If the PAYG withholding amounts taken from your payments during the year are more than your tax liability, you will receive a credit for the excess amounts. You may receive a refund.
    • If you have not had enough PAYG withholding taken from your payments during the year, you may receive a tax bill.

    Note:

    • Regardless of the rate of PAYG withholding applied to you, it does not change your end-of-year tax liability. It only changes the amount you have pre-paid throughout the year.
    • If the PAYG withholding rate applied to you is too high, you may receive a refund in your tax return. We cannot refund any potential over-withheld amounts outside the tax return process.

    PAYG withholding changes after Court decision

    CSC will determine which new rates apply to you. If your invalidity payments are affected by the Court decision and are therefore super lump sum payments, the applicable withholding rates are set out in the Tax table for super lump sums.

    We have also issued CSC with a class withholding variation which takes into account the tax-free threshold and Medicare levy exemption if these have been claimed by you.

    CSC will withhold the updated amounts from your fortnightly payment as soon as practicable.

    You do not need to do anything.

    CSC will:

    • work out if you are affected by the Court decision
    • if you are affected, determine which rates to apply based on whether you have claimed the tax-free threshold for your military super invalidity benefit
      • you would have indicated this to CSC in the past when you completed and lodged a Tax file number declaration or Withholding declaration
       
    • apply PAYG withholding rates according to the Tax table for super lump sums – if you have not claimed the tax-free threshold
    • apply a withholding variation that we issued to CSC – if you have claimed the tax-free threshold.

    Note: If you are not affected by the Court decision, the Tax table for super income stream benefits continues to apply,

    Different PAYG withholding tax tables apply depending on your personal circumstances. It is possible for individuals with the same invalidity benefit amount per fortnight to have different amounts of PAYG withheld. Therefore, they may have different take home amounts.

    For more information, see Treatment of military invalidity benefits following Full Federal Court decision.

    Adjust your PAYG withholding

    In some cases you may have reviewed your personal circumstances and determined that you would like to change the PAYG withholding that applies to you.

    You can consider if the following are appropriate in your personal circumstances:

    To claim the tax-free threshold

    To change whether you claim the tax-free threshold for your invalidity payments from CSC:

    There are important factors to consider when determining whether to claim the tax-free threshold.

    These include:

    • the number of payers you have
    • whether you have already claimed the tax free threshold from one of those payers
    • your age.

    If you have more than one payer at the same time, only claim the tax-free threshold from the payer who usually pays the highest income.

    Your age is an important consideration when deciding to claim the tax-free threshold. Capped tax rates apply to superannuation lump sum invalidity benefits.

    You should consider claiming the tax-free threshold for the largest of those other payments and not the CSC payment if:

    • you are under 60 years old and withhold tax from other payments over $45,000
    • you are 60 years old or over and withhold tax from other payments over $18,200.

    To claim the Medicare levy exemption

    You can complete a Medicare levy variation declaration to:

    • increase the PAYG amount withheld to cover Medicare levy surcharge
    • decrease the PAYG amount withheld to cover Medicare levy from payments to you.

    To apply for a variation

    You may have reviewed your personal circumstances and decided you would like to change the PAYG withholding that applies to you. You can do this by varying your PAYG withholding.

    To work out how much PAYG needs to be withheld, see Calculating amount to withhold.

    You do not need to apply for a withholding variation if the appropriate withholding amounts are achieved by applying:

    Note: If you apply for a withholding variation in May or June 2021, it will apply to the 2021-22 financial year starting from 1 July 2021.

      Last modified: 11 May 2021QC 65642