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  • PAYG withholding obligations

    If you are the trustee of a self-managed super fund (SMSF), you have pay as you go (PAYG) obligations to withhold tax for superannuation benefit payments you pay to members who are:

    • under 60 years old and the benefit is an income stream (pension) or a lump sum
    • under 60 years old and the death benefit is a pension which is a capped defined benefit income stream where the deceased was 60 years old or over when they died
    • 60 years old or over and the benefit is a pension which is a capped defined benefit income stream

    Capped defined benefit income streams include life expectancy and market linked pensions which were payable before 1 July 2017 and reversionary income streams paid to beneficiaries.

    If the member is receiving a capped defined benefit income stream, the member's defined benefit income cap may need to be taken into consideration when working out the member's withholding.

    You also have obligations to withhold tax from superannuation benefits you pay to:

    • a non-dependant in the event of another person's death
    • the trustee of a deceased estate.

    Withholding obligations

    If you have obligations to withhold tax, you need to:

    Provide information to the recipient of the benefit

    You should provide the recipient with the details of each income stream or lump sum payment on a PAYG payment summary where the:

    • super lump sum is paid to  
      • a member who was under 60 years old
      • a non-dependant in the event of another person's death
      • the trustee of a deceased estate.
       
    • super income stream
      • you pay the member up until they turn 60 years old
      • capped defined benefit income stream you pay a member after they turn 60 years old
      • capped defined benefit income stream is a death benefit income stream where the you pay a member who is 59 years old or younger and the deceased was aged 60 years old or over at the time of death. The payment summary will need to show that this is a death benefit (reversionary income stream).
       

    Each pension payment summary needs to include details of the payment, including the:

    • tax-free component
    • taxable component
    • tax offset (if applicable)
    • tax withheld (if applicable).

    Payment summaries should be issued in the situations listed above even if no tax has been withheld.

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    Withholding obligations – income streams

    SMSFs have obligations to withhold tax from income streams they pay to members who are:

    • under 60 years old
    • under 60 years old and the income stream is both
      • a death benefit income stream and the deceased member was 60 years old or over when they died
      • a capped defined benefit income stream
       
    • 60 years old or over and the income stream is also a capped defined benefit income stream

    You must provide your member with a PAYG payment summary by 14 July following the end of the financial year in which the payment was made.

    You must lodge a PAYG withholding payment summary statement with us by 14 August following the end of the financial year in which the payment was made.

    You must provide this information even where you are paying an income stream and the rate of withholding is nil. This allows us to ensure the individual pays the correct rate of tax once all their pension income from all their funds is taken into consideration.

    Example 1: SMSF with a capped defined benefit income stream withholding obligation

    The SMSF pays member Maryanne an income stream of $15,000 per month.

    The income stream is a capped defined benefit income stream.

    Maryanne's annual pension payments will be $180,000, made up of a:

    • a tax-free component of $80,000
    • a taxable component - taxed element of $100,000.

    The defined benefit income cap is $100,000 and as Maryanne is aged over 61 years old and has received the income stream for the full year there are no factors to reduce the defined benefit income cap.

    Maryanne has exceeded her defined benefit income cap and the SMSF trustee will need to work out the rate of withholding.

    Withholding applies to 50% of the amount over the cap.

    • $180,000 - $100,000 = $80,000
    • 50% of $80,000 = $40,000

    Therefore withholding applies to $40,000 per annum, the SMSF trustee should follow Schedule 13 – Tax table for superannuation income streams to work out the amount to withhold from each payment.

    The SMSF trustee will need to provide Maryanne with a PAYG payment summary - superannuation income stream by the 14 July and lodge a PAYG payment summary statement with the ATO by 14 August.

    Example 2: SMSF with a capped defined benefit income stream withholding obligation where the withholding rate is nil

    The SMSF pays member Richard an income stream of $2,000 per month.

    The income stream is a market linked pension which was payable to Richard just before 1 July 2017

    Richard's annual pension payments will be $24,000, made up of a:

    • a tax-free component of $10,000
    • a taxable component - taxed element of $14,000.

    The defined benefit income cap is $100,000 and as Richard is aged over 61 and has received the income stream for the full year there are no factors to reduce the defined benefit income cap.

    As Richard has not exceeded this cap the rate of withholding which applies is nil.

    The SMSF trustee will need to provide Richard with a PAYG payment summary - superannuation income stream by the 14 July and lodge a PAYG payment summary with the ATO by 14 August.

    Example 3: SMSF has an obligation to provide multiple pension payment summaries

    The SMSF pays Greg an income stream of $7,000 per month.

    An income stream of $9,000 per month is paid to him following the death of his spouse, Julie who was 62 years old at the time of death.

    The death benefit income stream payable to Greg is a capped defined benefit income stream.

    Greg is 58 years old.

    As different rates of tax apply to the two pensions Greg receives, the SMSF trustee will need to calculate the rate of withholding for each income stream and provide Greg with a separate pension payment summary in relation to each income stream and report the details of each income streams in the Payment summary annual report.

    End of example

    Lump Sum Payments

    For lump sums you must provide the recipient with a PAYG payment summary – superannuation lump sum within 14 days of making the lump sum payment.

    When is tax not withheld

    Tax is not withheld if the member:

    • is 60 years old or over and the benefit is from an income stream which is not a capped defined benefit income stream
    • has died and the benefit is paid to a dependent beneficiary as a lump sum
    • has died and the benefit is paid to a dependent beneficiary as an income stream which is not a capped defined benefit income stream and either the dependant or member were 60 years old or over
    • has a terminal medical condition.

    See also:

    Last modified: 26 Feb 2019QC 42475