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On this episode of The nestegg Podcast, host Maja Garaca Djurdjevic and three experts discuss the latest in equities, property investing and super.

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Steve Waters, director of Right Property Group, chats about the latest in property, including CoreLogic’s latest findings, which suggest national home values have increased at the fastest pace in over 30 years, and why he isn’t quite sure this is the case.

RMIT’s senior lecturer of finance, Dr Angel Zhong, talks about soaring travel stocks, the rising popularity of NFTs and what they are, as well as the sudden meltdown of Archegos Capital Management.

And lastly, tax and super guru Timothy Munro gives his thoughts on Paul Keating’s early release of super verdict, as well as an overview of life after JobKeeper.

Have a question for our experts? Get in touch at [email protected] and you might get featured on the next episode.

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What retirement benefits are taxable?

By Louise Chan

April 11 2019
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What retirement benefits are taxable?

By Louise Chan
April 11 2019

Most Australians know that the income they receive from their superannuation fund, whether as a lump sum or income stream, is already tax-free once they retire. However, there are some conditions wherein retirement benefits are still taxable.

What retirement benefits are taxable?

By Louise Chan

April 11 2019
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Some conditions that can determine whether an individual has to pay tax on their retirement benefits are:

Condition of release
Type of pension
Type of fund

Condition of release

The means of accessing retirement benefits can dictate whether an individual would be exempt from paying tax. This is because the only condition that allows individuals to receive their retirement benefit without triggering tax is a full retirement.

For any other condition of release, the income individuals receive are still subject to special tax rules. Consider the following:

Age
An individual may access their retirement benefits earlier by commencing a transition to retirement income stream (TRIS). In this case, taxation depends on the individual’s age. For money that will come from their fund’s taxed component, the income will no longer be taxed regardless of age.

However, money that comes from the untaxed component will be subject to tax at their marginal tax rate (MTR) if they are below their preservation age. If they are between preservation age and 60, the income will be subject to their MTR but they are entitled to a 15 per cent tax offset.

Early access eligibility
These are conditions that allow early access or withdrawal from super, such as severe financial hardship, temporary or permanent incapacity, compassionate grounds and terminal medical condition. For these cases, the withdrawn amount may be subject to special tax rules.

For instance, income from early access of retirement benefits on compassionate grounds may be taxed between 17 and 22 per cent. However, access due to permanent incapacity will be subject to the individual’s MTR reduced by 15 per cent.

Type of pension

Tax on retirement benefits also depend on the type of pension the monies will be sourced from. An individual may receive an income stream or lump sum from a superannuation fund or a separate annuity. Let’s assume that an individual is simply receiving retirement benefits due to retirement.

Superannuation
As a general rule, all super have a taxable and untaxed components. The untaxed portion is made up of voluntary contributions that the individual made after paying taxes (net salary), which means this portion will no longer be taxed regardless of when they access the money.

The taxable component is made up of pre-tax contributions and are subject to 15 per cent tax within the fund. However, the fund manager may decide when to pay tax on the contributions. If the fund has already paid tax on the money, then the individual will no longer be taxed when they receive it. However, if the fund hasn’t paid tax on the taxable portion, the individual must indicate the amount as part of their assessable income and pay 15 per cent tax on it.

Annuity
Most annuities operate like super funds in the sense that it has a taxable and untaxed components. Since annuities are usually taken out from insurance companies, the company or agent will be able to provide a statement that reflects whether the income an individual will receive should form part of their assessable income or are tax-free.

Type of fund

The type of fund an individual contributes to may also determine its taxation rules.

Taxed accumulation fund
Taxed accumulation funds refer to most super funds. This means income stream and taxation depends on which component the benefit will come from.

Defined-benefit fund
Defined-benefit funds are usually offered by local, state and federal government institutions. Most of these funds are untaxed so members of defined-benefit funds can expect to pay tax once they start receiving a retirement income stream or lump sum.

It’s best to ask the fund manager how their fund works to understand how taxes will be applied once members begin receiving retirement benefits.

Filing taxes

The most important thing to remember is that Australian taxpayers are required to submit their tax return annually. However, those whose income are exempt from tax, such as retirees who no longer need to lodge their tax return, must still advise the government of their new tax status by completing a non-lodgment advice.

If in doubt or confused, seeking the advice of a qualified tax professional is recommended.

This information has been sourced from the Australian Taxation Office and ASIC.

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About the author

Louise Chan

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

About the author

Louise Chan

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