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  • Capped defined benefit income streams: tax requirements

    Do your members receive income from one or more capped defined benefit income streams? If so, they may have additional tax liabilities and may need to calculate their entitlement to the 10% tax offset. This applies if the income from all their capped defined benefit income streams exceeds their defined benefit income cap.

    If an SMSF pays a capped defined benefit income stream to a member with a defined benefit income cap, you must provide them with a pension payment summary which was due on 14 July 2019. You must also lodge a PAYG withholding payment summary annual report with us by 14 August 2019. This is required even if the amount you withhold from the pension the SMSF pays to them is nil.

    Defined benefit income cap

    Your member will have a defined benefit income cap if they have income from a capped defined benefit income stream and are:

    • 60 or older
    • under 60 and receiving a death benefit income stream from a person who died aged 60 or over.

    For most people, the defined benefit income cap will be $100,000. It may be less in some circumstances, including if they turned 60 during the year or were over 60 and started receiving income from a capped defined benefit income stream for the first time partway through the year.

    Implications for the individual tax return

    When preparing their individual tax return, your member needs to:

    • consider all the income they receive from capped defined benefit income streams
    • include at label 7M, half of the income from the tax-free component and taxed elements of all their capped defined benefit income streams which exceeds their defined benefit cap
    • include any untaxed element at label 7N
    • calculate their entitlement to the 10% tax offset and include it at label T2 (the amount may be nil).

    Help to get it right

    Once your member has all their pension payment summaries, can use our defined benefit income cap tool to calculate:

    • their defined benefit income cap
    • any income which needs to be included in assessable income and reported at label 7M or 7N
    • their entitlement to the 10% tax offset.

    If your member lodges their return using myTax, we will prefill their return with the information reported to us and myTax will provide a two-click solution to ensure they correctly include this pension income in their return.

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      Last modified: 17 Jul 2019QC 59679