Some super questions - confused......

Hi all,

Just trying to get my head around a few things
I just got off the phone to my dad who has his own self managed super fund. His accountant just tried explaining a few things to him but he's a little confused...
My dad turned 61 in January and my mum turned 60 in April. My dad is still working but my mum isn't.
Apparently my mum can withdraw $150,000 without being taxed because she's >60 and not working??
My dad was also trying to explain to me that ALL earnings from the fund excluding his employer contributions are exempt from tax in the fund as they are both >60. Does this sound correct??? I thought from 65 onwards earnings are exepmt?

Oh...he also mentioned something about transitional and pension phase...??

Thanks in advance.

 

Hi Kathryn,

Any earnings from assets used that are used to fund a pension are exempt from tax.

Contributions from employers (SGC and salary sacrifice) are still taxable, however the end of year tax payable amount of the SMSF will be reduced by any refundable tax credits such as franking credits from shares.

Transition to retirement is when a person starts to draw a pension from age 55 - however they are limited to drawing a maximum of 10% of their account balance. For example if someone has $400,000 as at 1 July 2010, then they can draw a maximum of $40k for the year 1 July 2010 to 30 June 2011.

A person can draw a tax free lump sum of $160k* (once in their lifetime) once they meet a condition of release which basically is:

- over 55 retired permanently (with no intention of ever returning to work)
- over 60 and having a change of employment (i.e. new job or going from full time to part time etc)
- turning age 65
- permanently disabled (regardless of age)
- a few other conditions are probably NOT relevant to your questions

*The $160k is the 'taxable component' - and most peoples super benefits are made up of taxable and tax-free components - which is shown on the members statement - so the actual amount a person aged between 55 and 60 can pull out without paying tax may be a lot higher

Any payments from super for someone over the age a 60 are tax free - i.e. they don't have to be reported in the individuals income tax return. This is regardless of the taxable and tax free components.

When a person is drawing a transition to retirement pension and fulfils a condition of release their benefits become 'unrestricted non-preserved' meaning they can pull as much as they want out - although in most cases it is best to keep money in super and draw a tax free pension.

A lot of the time the individuals receiving a pension may not even have a requirement to complete a personal tax return which is a bonus.

In general anyone over 55 who is still working full time should be salary sacrificing and then topping up their income with a transition to retirement pension - even if they are aged between 55 and 60 the pension they draw is taxable - but that income has a 15% tax offset - which creates a 'tax arbitrage' - the whole idea being that people are encouraged to stay in the work force longer and simultaneously build their retirement nest egg. Thanks Mr Costello

If the above seems like it is in another language I apologise. Let me know if I need to translate

SM