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• ## Part B

Use this part if the payee is receiving a capped defined benefit income stream during the year and is:

• 60 years old or over and
• their super income stream is made up of
• tax-free component
• taxable component – taxed element
• tax-free component and the taxable component – taxed element.

### Withholding steps

Step 1: Convert the super income stream components the payee received for the period to an annualised amount and use the following table to work out whether withholding applies, and if so, what amount it applies to.

Income stream components

Does withholding apply?

Sum of the annualised tax-free component and taxed element is less than the Defined benefit income cap

No withholding applies. No further steps are necessary.

Sum of annualised tax-free component and taxed element is greater than the Defined benefit income cap

Withholding applies to 50% of the amount over the cap. Go to Step 2.

Step 2: Calculate the weekly, fortnightly or monthly equivalent of the amount from Step 1 in excess of the cap. For example, if you pay the payee weekly, divide the excess by 52. If you pay fortnightly, divide the excess by 26. If you pay monthly, divide the excess by 12 (ignore cents in the result).

Step 3: Divide the amount calculated at Step 2 by two (ignore cents in the result).

Step 4: Use the appropriate PAYG withholding tax table to calculate the withholding amount relevant to the amount worked out in Step 3. The tax table you use depends on the period the income stream covers – that is, weekly, fortnightly or monthly.

These examples use the PAYG withholding tax tables that apply from 13 October 2020.

Example: Case B (i): Capped defined benefit income stream where the annual entitlement is under the cap

Courtney, 61, receives a fortnightly capped defined benefit income stream of \$2,000 comprising:

• a tax-free component of \$200
• a taxable component – taxed element of \$1,800.

Courtney is entitled to the full defined benefit income cap amount of \$106,250 as there are no factors present that reduce this cap. The annual equivalent of Courtney's fortnightly super income stream (\$52,000) is less than the defined benefit income cap of \$106,250. As Courtney is over 60 years old and her capped defined benefit income stream is comprised wholly of a taxed element and tax-free component of less than \$106,250 for the income year, no withholding is required.

End of example

Example: Case B (ii): Capped defined benefit income stream where the annual entitlement exceeds the cap

Bill, 63, receives a fortnightly capped defined benefit income stream of \$6,550 comprising:

• a tax-free component of \$750
• a taxable component – taxed element of \$5,800.

Bill is entitled to the full defined benefit income cap amount of \$106,250 as there are no factors present that reduce this cap.

Step 1: The annual equivalent of Bill's fortnightly capped defined benefit income stream is made up of an annualised tax-free component of \$19,500 and annualised taxed element of \$150,800 totalling \$170,300, which is greater than the defined benefit income cap of \$106,250. Withholding applies to 50% of the amount over the cap. Go to Step 2.

Step 2: Calculate the fortnightly equivalent of the amount in excess of the cap.

\$170,300 − \$106,250 = \$64,050

\$64,050 ÷ 26 = \$2,463 (ignoring cents)

Step 3: Divide the amount calculated at Step 2 by two.

\$2,463 ÷ 2 = \$1,231 (ignoring cents)

Step 4: Use the Fortnightly tax table to calculate the withholding amount relevant to the amount worked out in Step 3.

As Bill has claimed the tax-free threshold the withholding amount is \$122.

End of example

## Part C

Use this part if the payee is receiving a capped defined benefit income stream and:

• is 60 years old or over, and
• their income stream is only made up of a taxable component – untaxed element.

### Withholding steps

Step 1: Use the appropriate PAYG withholding tax table to calculate the withholding amount relevant to this pay period's taxable component – untaxed element. The tax table you use depends on the period the income stream covers – that is, weekly, fortnightly or monthly.

Note: Some payees may be eligible to claim the seniors and pensioners tax offset (SAPTO). If the payee gives you a Withholding declaration indicating they want to claim a SAPTO entitlement through PAYG withholding, you should use the Tax table for seniors and pensioners to work out the amount to withhold from the amount calculated in Step 1.

Step 2: Determine the tax offset for the payment.

Convert the untaxed element the payee received this period to an annualised amount. Use the following table to work out the amount of tax offset that applies.

Untaxed element – annualised amount

Tax offset

Equal to or greater than the Defined benefit income cap

Tax offset is capped at 10% of the cap.

Less than the Defined benefit income cap

Tax offset is calculated at 10% of the untaxed element.

Step 3:

If the annualised amount from Step 2 is less than the cap, then:

Tax offset = Untaxed element for the payment × 10%

If the annualised amount from Step 2 is greater than the cap, then the annual tax offset is capped at 10% of the cap. Therefore, the tax offset for the payment is reduced to the weekly, fortnightly or monthly equivalent of the capped tax offset amount.

Step 4: Work out the amount to withhold by subtracting the tax offset per payment (Step 3) from the withholding amount (Step 1).

Amount to withhold = withholding amount − tax offset

If the tax offset amount is greater than the withholding amount, the amount to withhold is nil.

Example: Case C: Capped defined benefit income stream comprised of a taxable component – untaxed element only

This example uses the PAYG withholding tax tables that apply from 13 October 2020.

Vera, 68, receives a weekly super income stream of \$2,500 comprised only of a taxable component – untaxed element.

Step 1: Using the Weekly tax table, the withholding amount relevant to the taxable component – untaxed element for \$2,500 is \$689 (Vera has claimed the tax-free threshold).

Step 2: The annual equivalent of Vera's weekly super income stream untaxed element (\$2,500 × 52 = \$130,000) is greater than the defined benefit income cap of \$106,250. Therefore, Vera's tax offset is capped at \$10,625 for the financial year.

Step 3: As Vera is over 60 years old she is eligible for a 10% tax offset of the untaxed element.

The weekly tax offset amount is capped at \$10,625 ÷ 52 = \$204 (ignore cents)

This weekly offset amount exceeds this cap (\$13,000 ÷ 52 = \$250). Therefore, the weekly tax offset is reduced to \$204.

Step 4: Work out the amount to withhold by subtracting the tax offset per payment (Step 3) from the withholding amount (Step 1).

Amount to withhold = withholding amount − tax offset

Amount to withhold = \$689 − \$204

Amount to withhold = \$485

End of example

## Part D

Use this part where the payee is receiving a capped defined benefit income stream and:

• is 60 years old or over, and
• their income stream is made up of one or more of
• tax-free component and/or taxable component – taxed element
• taxable component – untaxed element.

### Withholding steps

#### Work out the amount subject to withholding

Step 1: Convert all of the components of the whole income stream the payee received during this period to an annualised amount.

Then add together all the annualised components that make up the income stream. Use the table below to determine whether you go to Step 2 or part C.

Income stream components

Sum of components

Next step

Tax-free

Taxed element

Untaxed element

Yes

Yes

Yes

Equal to or greater than the Defined benefit income cap

Go to Step 2

Yes

Yes

Yes

Less than the Defined benefit income cap

Go to part C (untaxed component)

Step 2: Add the annualised tax-free component and annualised taxed element. Subtract the cap from this amount. If this is less than the cap, go to Step 5.

Step 3: Calculate the weekly, fortnightly or monthly equivalent of the amount at Step 2. For example, if you pay the payee weekly, divide the excess by 52. If you pay fortnightly, divide the excess by 26. If you pay monthly, divide the excess by 12 (ignore cents in the result).

Step 4: Divide the amount calculated at Step 3 by two (ignore cents in the result). The result is the amount subject to withholding.

Step 5: Calculate the weekly, fortnightly or monthly equivalent of the untaxed element and add this to the amount calculated at Step 4 (if applicable).

Step 6: Use the appropriate PAYG withholding tax table to calculate the withholding amount relevant to the amount worked out in Step 5. The tax table you use depends on the period the income stream covers – that is, weekly, fortnightly or monthly.

#### Calculate the tax offset applicable

Step 7: If the sum of the annualised tax-free component and the annualised taxed element is equal or greater than the cap, then the payee is not entitled to a tax offset.

If the sum of the annualised tax-free component and the annualised taxed element is less than the cap, the payee is entitled to a reduced tax offset. Subtract from the cap the sum of the tax-free component and the taxed element from Step 2 and apply 10% to this amount. The result is the annual tax offset amount.

Calculate the weekly, fortnightly or monthly equivalent of this tax offset. For example, if you pay the payee weekly, divide the amount by 52. If you pay fortnightly, divide the amount by 26. If you pay monthly, divide the amount by 12 (ignore cents in the result).

#### Work out the amount to withhold

Step 8: Subtract the tax offset per payment (Step 7) from the withholding amount (Step 6).

Amount to withhold = withholding amount − tax offset

These examples use the PAYG withholding tax tables that apply from 13 October 2020.

Example: Case D (i): Payee is over 60 years old and receives all elements of a capped defined benefit income stream

Nancy, 75, receives a capped defined benefit income stream for the financial year of \$212,000 comprising of the annualised:

• taxable component – taxed element \$120,000
• taxable component – untaxed element \$62,000
• tax-free component \$30,000.

Nancy is paid weekly and claims the tax-free threshold.

Work out the amount subject to withholding

Step 1: Add together all the annualised components.

\$120,000 + \$62,000 + \$30,000 = \$212,000

As the sum is over the \$106,250 cap, proceed to Step 2.

Step 2: Add together the tax-free component and taxed element. Subtract the \$106,250 cap from this amount.

Sum of tax-free component and taxed element

\$120,000 + \$30,000 = \$150,000

Amount in excess of cap

\$150,000 − \$106,250 = \$43,750

Step 3: Calculate the weekly equivalent of the amount in excess of \$106,250 calculated at Step 2.

\$43,750 ÷ 52 = \$841 (ignore cents)

Step 4: Divide the amount calculated at Step 3 by two.

\$841÷ 2 = \$420 (ignore cents)

Step 5: Calculate the weekly equivalent of the untaxed element of the taxable component \$1,192 (\$62,000 ÷ 52) and add it to the amount calculated at Step 4 (\$420).

\$1,192 + \$420 = \$1,612

Step 6: Using the Weekly tax table, the withholding amount relevant to the amount calculated in Step 5 is \$374.

Calculate the tax offset applicable

Step 7: Determine any entitlement to the tax offset. As the sum of Nancy's taxed element and tax-free component is over \$106,250, she is no longer eligible for a tax offset for the untaxed element.

Work out the amount to withhold

Step 8: Amount to withhold = withholding amount (Step 6) − tax offset (Step 7)

= \$374 − 0

Total amount to withhold is \$374.

End of example

Example: Case D (ii): Payee is over 60 years old and receives all elements of a capped defined benefit income stream

Fred, 68, receives a capped defined benefit income stream (annualised) for the full financial year of \$125,000 comprising:

• taxable component – taxed element \$82,000
• taxable component – untaxed element \$33,000
• tax-free component \$10,000.

Fred is paid fortnightly and claims the tax-free threshold.

Work out the amount subject to withholding

Step 1: Add together all the components.

\$82,000 + \$33,000 + \$10,000 = \$125,000

As the sum is over the \$106,250 cap, proceed to Step 2.

Step 2: Add together the tax-free component and taxed element. Subtract the \$106,250 cap from the result.

Sum of tax-free component and taxed element.

\$10,000 + \$82,000 = \$92,000

Amount in excess of cap.

\$92,000 − \$106,250 = −\$14,250

As \$92,000 is less than \$106,250 there is no excess amount.

Step 3 and Step 4: These steps are not necessary as no excess amount was calculated at Step 2.

Step 5: Add the untaxed element of the taxable component \$1,269 (i.e. fortnightly equivalent of \$33,000) to the amount calculated at Step 4 (Nil).

\$1,269 + Nil = \$1,269

Step 6: Using the Fortnightly tax table, the withholding amount relevant to the amount calculated in Step 5 is \$130.

Calculate the tax offset applicable

Step 7: As Fred's tax-free component and taxed element is less than the \$106,250 cap, then he is entitled to a tax offset limited to the amount up to the cap.

Tax offset = (\$106,250 − amount at Step 2) × 10%

(\$106,250 − \$92,000) × 10% = \$1,425

The tax offset amount is capped at \$1,425.

As Fred is being paid on a fortnightly basis divide the offset by 26.

\$1,425 ÷ 26 = \$54 (ignore cents).

Work out the amount to withhold

Step 8: Amount to withhold = withholding amount (Step 6) − tax offset (Step 7)

= \$130 − \$54

Total amount to withhold is \$76.

End of example

Example: Case D (iii): Payee is over 60 years old and receives some elements of a capped defined benefit income stream

Bob, 70, receives a capped defined benefit income stream (annualised) for the full financial year of \$210,000 comprising of:

• taxable component – taxed element \$0
• taxable component – untaxed element \$180,000
• tax-free component \$30,000.

Bob is paid weekly and claims the tax-free threshold.

Work out the amount subject to withholding

Step 1: Add together all the components.

\$0 + \$180,000 + \$30,000 = \$210,000

As the sum is over the \$106,250 cap, proceed to Step 2.

Step 2: Add together the tax-free component and taxed element. Subtract the \$106,250 cap from this amount.

\$30,000 + \$0 = \$30,000

\$30,000 − \$106,250 = −\$76,250

As \$30,000 is less than the \$106,250 cap, there is no excess amount.

Step 3 and Step 4: These steps are not necessary as no excess amount was calculated at Step 2.

Step 5: Add the untaxed element of the taxable component \$3,461 (that is, weekly equivalent of \$180,000) to the amount calculated at Step 4 (Nil).

\$3,461 + Nil = \$3,461

Step 6: Using the Weekly tax table, the withholding amount relevant to the amount calculated in Step 5 is \$1,064.

Calculate the tax offset applicable

Step 7: As Bob's tax-free component is less than the \$106,250 cap, then he is entitled to a tax offset limited to the amount up to the cap.

Tax offset = (\$106,250 − amount at Step 2) × 10%

(\$106,250 − \$30,000) × 10% = \$7,625

The tax offset amount is capped at \$7,625

As Bob is paid weekly divide the offset by 52.

\$7,625 ÷ 52 = \$146 (ignore cents)

Work out the amount to withhold

Step 8: Amount to withhold = withholding amount (Step 6) − tax offset (Step 7)

= \$1,064 − \$146

Total amount to withhold is \$918.

End of example

## Part E

Use this part if the payee:

• was 60 years old or older for the full financial year and they started their capped defined benefit income stream for the first time part-way during the year [complete Step 1(a)], or
• turned 60 during the financial year and are in receipt of a capped defined benefit income stream [complete Step 1(b)], or
• was aged 59 years or younger for the full financial year and has a capped defined benefit income stream that is a reversionary death benefit income stream where the deceased was aged 60 or over at the time of death [complete Step 1(c)].

Note: If the payee is in receipt of multiple capped defined benefit income streams (maybe from multiple sources) or where the payee is in receipt of their own income stream at the same time as they are receiving a reversionary death benefit income stream, then the reduction of the cap may not be correct in all circumstances.

### Steps to reduce the defined benefit income cap

 Step 1 Use whichever is applicable to the payee's circumstances: Work out the number of days from when you first paid a super income stream to 30 June 2022. Work out the number of days from your payee's birthday to 30 June 2022. Work out the number of days from when you first started to pay the reversionary income stream to 30 June 2022. Note: Make sure you include the day they turned 60 or the day the income stream starts in your calculations. These steps are illustrative for the 2021-22 financial year. Step 2 Days worked out from Step 1 as a percentage of the year (number of days ÷ 365 × 100) Step 3 Multiply the general defined benefit income cap (\$106,250) by Step 2. The result is the payee's reduced defined benefit income cap. Step 4 Work out the withholding amount using the reduced defined benefit income cap. Refer to the examples for guidance.

These examples use the PAYG withholding tax tables that apply from 13 October 2020.

Examples: Case E (i): Turning 60 during the financial year

On 1 July 2021 Loraine was 59 years old receiving a capped defined benefit income stream for the full year. Loraine turns 60 on 12 September 2021. Loraine's income stream paid to her prior to turning 60 will be taxed according to part A.

The character of this income changes when she turns 60 and, therefore, she will be subject to a different tax treatment on the income she receives after she turns 60.

To calculate withholding on any payment made on or after Loraine's birthday, apply the steps outlined in this example.

Loraine receives a fortnightly income stream of \$5,200 for the full year, made up of the following:

• a tax-free component of \$400
• a taxable component – taxed element of \$4,800.

A. Work out Loraine's reduced defined benefit income cap for the 2021–22 financial year as follows:

• Step 1: Number of days from Loraine's birthday to 30 June 2022 is 292.
• Step 2: Step 1 result expressed as a percentage of the year: 292 ÷ 365 = 80%
• Step 3: Multiply the general defined benefit cap by Step 2 result: \$106,250 × 80%.

Loraine's reduced defined benefit income cap is \$85,000.

B. Annualise the components that make up Loraine's super income stream:

• a fortnightly tax-free component of \$400. Annualised amount \$10,400 (\$400 × 26)
• a taxable component - taxed element of \$4,800. Annualised amount \$124,800 (\$4,800 × 26)

C. Add the annualised amounts of each component \$10,400 + \$124,800 = \$135,200

D. Work out the amount of income Loraine earned after she turned 60.

Multiply the annual equivalent (step C) of Loraine's fortnightly super income stream by the percentage worked out at Step 2. \$135,200 × 80% = \$108,160

E. Work out the remaining fortnights in the financial year from when Loraine turned 60 that withholding applies: 292 days ÷ 14 days = 20

F. Work out the withholding rate as follows:

(i) Calculate the fortnightly equivalent of the amount in excess of her reduced cap of \$85,000.

\$108,160 − \$85,000 = \$23,160

Loraine is paid fortnightly, therefore:

\$23,160 ÷ 20 (remaining fortnights) = \$1,158 (ignoring cents)

(ii) Divide the amount calculated at (i) by two.

\$1,158 ÷ 2 = \$579 (rounded to the nearest dollar)

(iii) Use the Fortnightly tax table to calculate the withholding amount relevant to the amount worked out in (ii).

As Loraine has claimed the tax-free threshold the withholding amount is \$0.

Note: You will need to provide a PAYG payment summary – superannuation income stream for payments made to the payee before turning 60 and a separate payment summary for payments made to the payee after turning 60, even if the withholding amount is zero.

If a payee only had an untaxed element or a combination of all three elements then you will need to go to part C or part D respectively to work out the withholding after determining the reduced defined benefit income cap. However, the following changes to certain steps in each of these parts will be required:

• Multiply Step 2 of part C or Step 1 of part D (the annualised amount) by the percentage of the financial year the payee is 60 years or over (the figure from Step 2 in the Steps to reduce the defined benefit income cap section). Use this figure in the relevant steps in part C or part D instead of the annualised amount.
• In Step 2 of part B or Step 3 and Step 5 of part D, divide the relevant excess amount by the number of the relevant periods in the financial year since the payee turned 60 to the end of the financial year.
• In Step 3 of part C and Step 7 of part D, divide the relevant capped offset amount by the number of relevant periods in the financial year since the payee turned 60 to the end of the financial year.

Case E (ii): Turning 60 during the financial year – income stream made up of other components

Using Loraine's circumstances from the previous example, if Loraine receives fortnightly income of \$6,000 which was made up of \$2,000 tax-free component, \$3,000 taxed element and \$1,000 untaxed element. Loraine turns 60 on the 12 September 2021.

Step 1: Convert all the components of the income stream to an annualised amount. Total income stream \$6,000 × 26 = \$156,000

Taxed element \$3,000 × 26 = \$78,000

Untaxed element \$1,000 × 26= \$26,000

Tax-free component \$2,000 × 26 = \$52,000

Step 2: Apply the percentage that Loraine was over 60 to the whole of the annualised income stream \$156,000 × 80% = \$124,800

Step 3: From Step 2 in part D, add together the annualised tax-free component and taxed element that has been reduced by applying the percentage Loraine was over 60. \$41,600 + \$62,400 = \$104,000

Step 4: Subtract Loraine's reduced cap of \$85,000 from \$104,000. Result is \$19,000

Step 5: Divide the result in Step 4 by the remaining fortnights \$19,000 ÷ 20 = \$950 (ignore cents)

Step 6: Divide the amount at Step 5 by two. \$950 ÷ 2 = \$475. Add Loraine's fortnight untaxed element amount \$1,000. This totals \$1,475. Using the Fortnightly tax table the withholding amount for \$1,475 is \$174.

As Loraine's annualised tax-free component and taxed element is above her cap (as per Step 4 above) no tax offset is applicable.

End of example

Examples: Case E (iii): Starting an income stream during the financial year

Sarah is 65 years old and she first starts her capped defined benefit income stream on 30 December 2021.

Sarah's reduced defined benefit income cap for the 2021–22 financial year is worked out as follows:

• Step 1: Number of days from Sarah's first income stream payment to 30 June 2022 = 183
• Step 2: Step 1 result expressed as a percentage of the year: 183 ÷ 365 = 50.137%
• Step 3: Multiply the general defined benefit cap by Step 2 result: \$106,250 × 50.137%

Sarah's reduced defined benefit income cap is \$53,271 (rounded to the nearest dollar).

Sarah’s income stream for the period between 30 December 2021 and 30 June 2022 comprises:

• taxable component – taxed element: \$45,000
• taxable component – untaxed element: \$19,500
• tax-free component: \$13,000

Sarah’s total income stream payments from 30 December 2021 is \$77,500.

Sarah is paid fortnightly and claims the tax-free threshold.

As Sarah is paid fortnightly, you will need to work out the remaining fortnights that withholding applies in the financial year from when the income stream commenced to be paid: 183 days ÷ 14 days = 13

Work out the amount subject to withholding

Step 1: Add together all the components.

\$45,000 + \$19,500 + \$13,000 = \$77,500

As the sum is over the \$53,271 reduced cap, proceed to Step 2.

Step 2: Add together the tax-free component and taxed element. Subtract the \$53,271 reduced cap from this amount.

Sum the tax-free component and taxed element

\$45,000 + \$13,000 = \$58,000

Amount in excess of cap

\$58,000 − \$53,271 = \$4,729

Step 3: Calculate the fortnightly equivalent of the amount in excess of \$53,271 calculated at Step 2 by using the number of remaining fortnights in the financial year from when the income stream commenced.

\$4,729 ÷ 13 = \$363 (ignore cents)

Step 4: Divide the amount calculated at Step 3 by two.

\$363 ÷ 2 = \$181 (ignore cents)

Step 5: Calculate the fortnightly equivalent of the untaxed element of the taxable component using the remaining fortnights in the financial year from when the income stream started and add it to the amount calculated at Step 4

(\$19,500 ÷ 13) = \$1,500

\$1,500 + \$181 = \$1,681

Step 6: Using the Fortnightly tax table, the withholding amount relevant to the amount calculated in Step 5 is \$218.

Calculate the tax offset applicable

Step 7: Determine any entitlement to the tax offset. As the sum of Sarah's taxed element and tax-free component is over \$53,271, she is no longer eligible for a tax offset for the untaxed element.

If Sarah were eligible, you would apply the following:

• If the sum of the tax-free component and taxed element is less than the reduced cap, the payee is entitled to a reduced tax offset. Subtract from the reduced cap the sum of the tax-free component and the taxed element from Step 2 and apply 10% to this amount. The result is the tax offset amount the payee is entitled to for the financial year.
• Calculate the weekly, fortnightly or monthly equivalent of this tax offset amount for the remaining weeks, fortnights or months that withholding applies in the financial year from when the income stream commenced to be paid. For example, if the income stream started on 30 December 2021 and you pay the payee weekly divide the amount by 26. If you pay fortnightly, divide the amount by 13. If you pay monthly, divide the amount by 6 (ignore cents in the result).

Work out the amount to withhold

Step 8: Amount to withhold = withholding amount (Step 6) − tax offset (Step 7)

= \$218 − 0

Total amount to withhold is \$218.

Case E (iv): Starting an income stream during the financial year – income stream does not include all components

If Sarah only had a tax-free component and/or a taxable component - taxed element or an untaxed element, then you will need to go to part B or part C respectively to work out the withholding after determining the reduced defined benefit income cap. However, the following changes to certain steps in each of these parts will be required:

End of example

Example: Case E (v): Reversionary death benefit income where the payee is under 60 years old and the deceased was at least 60 years old

Freya, 59, receives a defined benefit income stream in her own right, and her income stream is taxed under part A of this schedule.

Freya's partner died on 27 February 2022; Freya's partner was aged 61 at the time of death and was in receipt of a defined benefit income stream with both tax-free components and taxable components. Freya is now entitled to a reversionary death benefit income stream.

As Freya has an existing capped defined benefit income stream, Freya's reversionary death benefit income stream will be subject to additional taxation arrangements.

Freya's reduced defined benefit income cap for the 2021–22 financial year is worked out as follows, based on her reversionary death benefit income stream:

• Step 1: Number of days from Freya's first income stream payment to 30 June 2022 is 124
• Step 2: Step 1 result expressed as a percentage of the year: 124 ÷ 365 = 33.973%
• Step 3: Multiply the general defined benefit cap by Step 2 result: \$106,250 × 33.973%
• Freya's reduced defined benefit income cap is \$36,096.

Freya was also receiving a defined benefit income stream in her own right, her defined benefit income cap will be further reduced by the amount from this income stream that she receives over the same period.

Freya is paid fortnightly and her own super income for the financial year is \$70,000, which comprises:

• taxable component – taxed element \$60,000
• taxable component – untaxed element \$0
• tax-free component \$10,000.

Her own income stream is taxed under part A of this schedule.

Freya's defined benefit income cap is reduced further by the amount of her personal super income for this period of time: \$36,096 − (0.33973 × \$70,000).

Freya's reduced defined benefit cap is now \$12,315 (rounded to the nearest dollar)

Freya's reversionary death benefit income stream comprises:

• taxable component – taxed element \$30,000
• taxable component – untaxed element \$10,000
• tax-free component \$10,000.

Freya's total reversionary income stream payment from 28 February 2022 is \$50,000.

Reversionary income in excess of the reduced cap of \$12,315 is \$37,685.

Calculate Freya's withholding on her reversionary income stream

Use part C to work out Freya's withholding amount, however you will need to work out the remaining fortnights in the financial year from when the income stream started, to apply the correct withholding as per previous examples.

Step 1: Calculate the fortnightly tax-free component and taxed element in excess of the reduced cap.

\$40,000 − \$12,315= \$27,685

Freya is paid fortnightly from 28 February 2022, therefore:

\$27,685 ÷ 8 = \$3,460 (ignoring cents)

Step 2: Divide the amount calculated at Step 1 by two.

\$3,460 ÷ 2 = \$1,730 (ignoring cents)

Step 3: Convert the untaxed element into fortnightly payments.

\$10,000 ÷ 8 = \$1,250

Step 4: Add the amounts calculated at Step 2 and Step 3

\$1,730 + \$1,250

= \$2,980

Step 5: Use the Fortnightly tax table to calculate the withholding amount relevant to the amount worked out in Step 4.

Freya recognises that she has multiple taxable income streams and, therefore, has not claimed the tax-free threshold on her reversionary income stream payment. Therefore, the withholding amount on \$2,980 is \$904.

Step 6: As the reversionary income stream tax-free and taxed element components totalled more than Freya's reduced defined benefit income cap, she is not entitled to a tax offset.

PAYG payment summary reporting

Freya will receive two PAYG payment summaries – superannuation income stream:

(1) PAYG payment summary – superannuation income stream

(personal income stream)

Applicable dates: 01/07/2021 – 30/06/2022

Tax withheld \$2,184

Taxable component – taxed element \$60,000

Taxable component – untaxed element \$0

Tax-free component \$10,000

Tax offset \$9,000

(2) PAYG payment summary – superannuation income stream

(reversionary death benefit income stream)

Applicable dates: 28/02/2021 – 30/06/2022

Tax withheld \$7,232

Taxable component – taxed element \$30,000

Taxable component – untaxed element \$10,000

Tax-free component \$10,000

As the source of this income stream was from an income stream that was subject to concessional tax treatment, no tax offset should be provided on the payment summary. The ATO will calculate any entitlement to a tax offset upon assessment.

If Freya's circumstances were different:

You would not reduce Freya’s defined benefit income cap and you would follow the steps in part B, part C or part D (as applicable) to calculate the withholding amount if:

• Freya was 60 years or over for the full financial year and was receiving the reversionary income stream for the full financial year, whether her husband died before or after he was 60, or
• Freya turns 60 during the financial year and her husband died aged 60 or over, and she was in receipt of the reversionary death benefit income stream for the full financial year.

If Freya was under 60 for the full financial year and Freya's husband had died before he turned 60, you would not reduce the defined benefit income cap and you would follow the steps in part A to calculate the withholding amount.

If Freya turns 60 during the financial year and her husband died aged under 60, and she was in receipt of the reversionary death benefit income stream for the full financial year, you would reduce the defined benefit income cap based on the date she turned 60 years of age and you would follow the relevant steps that are set out in the Loraine examples to calculate the withholding amount.

If Freya was 60 or over for the full financial year or turns 60 during the financial year, and she received the reversionary death benefit income stream for part of the year you would reduce the defined income cap based on either the day she turned 60 or the start of the income stream. You would follow the steps in part B, part C or part D (as applicable) to calculate the withholding amount. However, the following changes to certain steps in each of these parts will be required:

End of example

## Super death benefits

### Dependants

Dependants include all children of the deceased under 18 years old, any spouse of the deceased (including a former spouse and a current or former de facto spouse), and any person with whom the deceased had an interdependency relationship.

An interdependency relationship includes a close personal relationship between two people who live together, where one or both provides for the financial and domestic support and personal care of the other.

A dependant can also be a person who was financially dependent on the deceased. Before accepting that a person is financially dependent, phone us on 13 10 20.

### Non-dependants

A person who is not a dependant of the deceased is not able to receive a super income stream from the deceased. A super death benefit income stream that was being paid to a non-dependant prior to 1 July 2007 is taxed in the same manner as a super death benefit income stream paid to a dependant.

## Reversionary income streams

A death benefit income stream can either be reversionary or non-reversionary. A reversionary death benefit income stream is a super income stream that reverts to the entitled beneficiary automatically upon the member's death, if the death benefit payment is not a reversionary income stream then it is treated as if it was the member's income stream.

## Defined benefit income cap

The defined benefit income cap is relevant if the payee is either:

• 60 years or over
• under 60 years of age and a death benefits dependant, where the deceased died at 60 years of age or over.

The defined benefit income cap applies if the payee receives one or more superannuation income stream benefits that are 'defined benefit income' to which 'concessional tax treatment' applies. The defined benefit income cap does not have taxation consequences outside of these circumstances.

The defined benefit income cap is an annual cap that is reset, and may be reduced, each year. From 1 July 2017, the ‘defined benefit income cap’ limits the amount of tax-free income the payee can receive from a capped defined benefit income stream (pension or annuity).

For the 2021–22 financial year, the defined benefit income cap is \$106,250 (the \$1.7 million general transfer balance cap divided by 16).

See also:

## Preservation age

The withholding amount varies depending on whether the payee has reached their preservation age when the payment is made.

Preservation age is determined using your payee’s date of birth. For example, if a member was born on 1 October 1962, they reached their preservation age of 58 on 1 October 2020. The table below will help with this:

Preservation age by date of birth range

Date of birth

Preservation age

Before 1/7/1960

55

1/7/1960–30/6/1961

56

1/7/1961–30/6/1962

57

1/7/1962–30/6/1963

58

1/7/1963–30/6/1964

59

After 30/6/1964

60

## Cap conversion table

The full year cap on defined benefit income streams is \$106,250 as of 1 July 2021, and is subject to indexation. The cap may also need to be reduced – see part E.

The table below converts the \$106,250 cap into the weekly, fortnightly or monthly equivalent

Total income stream

Annual amount less than \$106,250

Annual amount \$106,250 or greater

Weekly equivalent

\$1 to \$2,043

\$2,044 or greater

Fortnightly equivalent

\$1 to \$4,086

\$4,087 or greater

Monthly equivalent

\$1 to \$8,854

\$8,855 or greater

## Conversion table for income streams commencing during current financial year

The table below can be used to determine the period to use for calculating withholding for income streams that start during the financial year:

Age of payee

If reversionary death benefit income stream

When income stream started

Calculate portion of income stream for the following period

Over 60 years for full financial year

Any age for deceased

Any time during the year

Start of income stream to end of financial year

Turns 60 years during financial year

Not a reversionary death benefit income stream (i.e. payee's own income stream)

Before payee turns 60

Day payee turns 60 to end of year

After payee turns 60

Start of income stream to end of financial year

Deceased was less than 60

Before payee turns 60

Day payee turns 60 to end of year

After payee turns 60

Start of income stream to end of financial year

Deceased was 60 years or more

Before Payee turns 60

Start of income stream to end of financial year

After payee turns 60

Start of income stream to end of financial year

Under 60 years for full financial year

Deceased was 60 years or more

At any time during the year

Start of income stream to end of financial year

## Payment summaries

You must issue a PAYG payment summary – superannuation income stream to the member for the total of the payments made in the financial year. This must be provided by 14 July. This date may be earlier if the payee requests it.

For 'account-based' income streams, you are only required to provide a payment summary to the payee where there is a requirement to withhold. You do not need to provide a payment summary for the period after the payee turns 60.

Example

Sue turns 60 on 1 March 2022. You are required to provide a payment summary to Sue for the period 1 July 2021 to 1 March 2022. No payment summary is required for the period 2 March 2022 to 30 June 2022.

End of example

For 'capped defined benefit' income streams, where a payee turns 60 during the year you must issue two separate payment summaries – one for the period prior to the payee turning 60 and one for the period from the payee's 60th birthday.

A payment summary is required to be issued to a payee in receipt of a super income stream even if no tax was withheld.

Payment summaries can also be printed using software that conforms to our reporting specifications.

See also:

Last modified: 21 Jun 2021QC 65806