The amount of tax you pay depends on whether you withdraw your super as:
a super income stream, or
a lump sum
Everyone's financial situation is unique, especially when it comes to tax. Make an informed decision. We recommend you get financial advicebefore you decide to withdraw your super.
Super income stream
A super income stream is when you withdraw your money as small regular payments over a long period of time.
If you're aged 60 or over, this income is usually tax-free.
If you're under 60, you may pay tax on your super income stream.
See retirement income tax.
Lump sum withdrawals
If you're aged 60 or over and withdraw a lump sum:
You don't pay any tax when you withdraw from a taxed super fund.
You may pay tax if you withdraw from an untaxed super fund, such as a public sector fund.
If you're under age 60 and withdraw a lump sum:
You don't pay tax if you withdraw up to the 'low rate threshold', currently $205,000.
If you withdraw an amount above the low rate threshold, you pay 17% tax (including the Medicare levy) or your marginal tax rate, whichever is lower.
If you have not yet reached your preservation age
:
You pay 22% (including the Medicare levy) or your marginal tax rate, whichever is lower.
See the super lump sum tax table on the ATO website for more detailed information.
Ref: https://moneysmart.gov.au/how-super-works/tax-and-super
Opportunities with untaxed super funds
Although becoming increasingly less common, there are still a number of untaxed or constitutionally protected funds (CPFs) in Australia that provide unique financial planning opportunities to planners.
This article is for educational purposes only and is no longer available for CPD hours.
Background
CPFs are untaxed super funds that do not pay tax on contributions or earnings they receive. They are operated by some state governments in Australia for their employees and are also often created for members of the judiciary. CPFs can be both accumulation style and defined benefit schemes.
Some well known CPFs are:
GESB West State Super and Gold State Super (WA State Government);Super SA (SA State Government); andDefence Force Retirement and Death Benefits Scheme.
Under the Australian constitution, state government assets cannot be taxed by the Commonwealth, so different arrangements apply to concessional super contributions made to CPFs.
Essentially, no tax is paid on contributions or earnings until the member leaves the fund. Instead, members are taxed at the time they access their benefit in accordance with Australian Taxation Office rules for untaxed funds. This could be triggered by withdrawing the funds upon meeting a condition of release or rolling over to a taxed super fund or income stream.
The unique characteristics of CPFs open up a number of financial planning strategies and considerations when advising clients who are members of such schemes.
Deferral of tax on earnings and contributions
The deferral of tax on benefits within a CPF may have the benefit of enhancing the growth of the client’s retirement egg.
For example, Gaby, age 58, receives $35,000 of pre-tax contributions to a taxed super fund in the 2015-16 financial year. The net amount of $29,750 earns gross 6 per cent per annum or 5.22 per cent after tax and fees. At the end of five years, the balance has grown to $38,370.
Kellie, age 58, also receives $35,000 of pre-tax super contributions in the 2015-16 financial year. However, her super fund is a CPF. Assuming the same pre-tax rate of return of 6 per cent, at the end of five years, Kellie’s super balance has grown to $46,838. At this time, she rolls the benefits over to a taxed super fund. Tax of 15 per cent on the balance or $7,026 is deducted, reducing the net benefit to $39,812.
Over a five year period, Kellie has additional retirement savings of $1,442 compared to Gaby. This is a further 4.1 per cent return on the original contribution of $35,000 as a result of the deferral of tax.
Ref: https://www.moneyandlife.com.au/professionals/learn/opportunities-with-untaxed-super-funds/
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