The taxation treatment of a super benefit paid from a complying super fund is based on:
- the amount of the benefit
- the age of the person receiving the benefit
- whether the benefit is being paid as a lump sum or an income stream
- whether the taxable component includes a taxed element and/or an untaxed element.
You don't have to withhold any tax on the tax-free component of a member benefit.
The taxable component of a lump sum is assessable income. However, the tax rates on super lump sum payments are subject to a maximum tax rate or a cap. These caps (low rate cap amount and untaxed plan cap amount) are given effect through tax offsets that reduce the individual’s marginal tax rate to the specified maximum tax.
If you make a super lump sum payment to an individual, including a super lump sum death benefit paid to a non-dependant, refer to Schedule 12 – Tax table for superannuation lump sums.
A super lump sum death benefit is not subject to PAYG withholding where it is paid to:
- a death benefit dependant – this amount is tax-free
- the trustee of a deceased estate – this amount is taxed within the estate in the same way it would be taxed if it was paid directly to the beneficiary.
Low rate cap amount
The low rate cap amount is the limit set on the amount of taxable components (taxed and untaxed elements) of a super lump sum that can receive a lower (or nil) rate of tax. It applies to members that have reached their preservation age but are below 60 years. It is a lifetime cap. Once the member has reached the low rate cap, any further benefits should be taxed at a higher rate.
The low rate cap amount for the 2015–16 year is $195,000. This amount is indexed each year in line with average weekly ordinary time earnings.
The untaxed plan cap amount limits the concessional tax treatment of benefits that have not been subject to contributions tax in the fund.
The untaxed plan cap amount is a per-plan limit that applies to all super lump sum benefits, paid by your fund, that include an untaxed element.
You should reduce the untaxed plan cap amount for each super interest by the total amount of each untaxed element that you pay, including rollovers (except internal rollovers).
The untaxed plan cap amount for the 2015–16 year is $1.395 million. This amount is indexed each year in line with average weekly ordinary time earnings.
The taxable component of a super income stream is assessable income for the recipient and is subject to withholding tax. Some super income streams are eligible for a tax offset. You will need to work out the tax offset amount and inform the recipient of this amount.
If you make a super income stream payment to an individual, including a super income stream death benefit, refer to Schedule 13 – Tax table for super income streams.
You should use the appropriate tax table depending on the period the income stream covers:
The Medicare levy of 2% will apply to all super payments (lump sums and income streams) where the rate of tax is greater than 0%.
The temporary budget repair levy is payable at a rate of 2% for taxable incomes over $180,000. It applies from 1 July 2014 to 30 June 2017, for both resident and non-resident individuals.
The levy will impact some super benefit payments; however, tax offsets continue to have effect to ensure that the relevant maximum rate of tax is applied. This means that you are generally not required to withhold the 2% levy when paying a super benefit unless the benefit is:
- a lump sum that contains an untaxed element in excess of the untaxed plan cap amount
- an income stream payment above $180,000.