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  • Schedule 6 – Tax table for annuities

    For payments made on or after 13 October 2020

    This document is a withholding schedule made by the Commissioner of Taxation in accordance with sections 15-25 and 15-30 of Schedule 1 to the Taxation Administration Act 1953 (TAA). It applies to withholding payments covered by paragraph 12-80(b) of Schedule 1 to the TAA.

    Using this schedule

    You should use this table if you pay an annuity that was purchased with non-superannuation money, for example, an initial capital investment of personal cash.

    For annuities purchased using money rolled over from a super fund or super income stream payments, refer to Tax table for superannuation income streams.

    Working out the withholding amount

    To work out the withholding amount for an annuity payment purchased with non-superannuation money, you must:

    1. Work out the amount of income to withhold from using the following formula:

    Annuity payment − [Deductible amount / Number of instalments]

    In this formula:

    • deductible amount represents the amount of the annuity payment that is exempt from tax. This amount is calculated using the formula found in section 27H of the Income Tax Assessment Act 1936.  
      • Where the annuity is held in only one person's name, the following formula is used:
        (Undeducted purchase price of the annuity − Residual capital value) / Term of annuity or life expectation factor  

        The undeducted purchase price is generally the amount of the initial capital investment.
      • Where the annuity is held or payable to 2 or more people, the deductible amount is apportioned depending on the amount each person received.
       
    • number of instalments is the number of instalments of the annuity payable in the income year.

    The recipient of the annuity may request the ATO to calculate the deductible amount of their annuity using Request for determination of the deductible amount of UPP of an Australian pension or annuity.

    1. Use the corresponding PAYG withholding tax table to find the withholding amount. The tax table you use depends on the period which the annuity is paid – for example, weekly or fortnightly.

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

    Examples

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

    Example 1

    Barbara has an annuity she purchased following the sale of a property. She receives annuity payments of $1,000 a week. The deductible amount for the 2020–21 income year is $5,200.

    1. The amount of income to withhold tax from:
      Annuity payment − [Deductible amount / Number of instalments]
      = $1,000 − [$5,200 / 52]
      = $1,000 − $100
      = $900
    2. Barbara is not eligible for SAPTO, so the payer will use the Weekly tax table (NAT 1005) to work out how much tax to withhold from $900. Assuming Barbara is claiming the tax-free threshold, the amount of tax to be withheld is $127.
    End of example

     

    Example 2

    Kenneth will receive fortnightly annuity payments on the 7th and 21st day of the month from 7 February 2021. For the remainder of the income year, the annuity will be $850 per fortnight. The annuity is indexed annually and the higher indexed amount is paid in the next financial year.

    Kenneth's deductible amount for a whole income year is $2,600. However, for the part of the current income year (2020–21) that he is to receive an annuity, his deductible amount is $1,000 (for the period 7th February 2021 to 30 June 2021).

    For the current income year, Kenneth will receive ten annuity instalments.

    1. The amount of income to withhold tax from:
      Annuity payment − [Deductible amount / Number of instalments]
      = $850 − [$1,000 / 10]
      = $850 − $100
      = $750
    2. Kenneth is not eligible for SAPTO, so the payer will then use the Fortnightly tax table (NAT 1006) to work out how much tax to withhold from $750. Assuming Kenneth is claiming the tax-free threshold, the amount of tax to be withheld is $6.
    End of example

    Rounding of withholding amounts

    Withholding amounts calculated using the above formulas should be rounded to the nearest dollar. Results ending in 50 cents are rounded to the next higher dollar. Do this rounding directly – that is, do not make a preliminary rounding to the nearest cent.

    Payment summaries

    You must issue a PAYG payment summary – individual non-business to the payee by 14 July following the end of the financial year in which you made payments to them. However, if your payee requests a payment summary from you during the financial year, you must provide it within 14 days of receiving their request.

    Last modified: 13 Oct 2020QC 63802