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# Part D

Last updated 20 June 2021

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

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