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Taxation of super benefits

Taxation of super income stream benefits (member benefits)

Section: 7.9

This outlines the tax treatment of superannuation income stream benefits (excluding disability benefit and death benefit income streams). For the tax treatment of death benefit income streams, refer to section 7.5. For the tax treatment of disability benefits paid as income streams, refer to section 7.6.

Taxation of tax-free component

In all cases, except capped defined benefit income streams, regardless of age, the tax-free component of a super lump sum is not assessable income and not exempt income. No tax is paid on these amounts. If the income stream is a capped defined benefit income stream, 50% of any tax-free component of income exceeding $100,000 per year is included in the client's assessable income and taxed at their marginal tax rate. See section 7.14

Age Taxable component (taxed element) Taxable component (untaxed element)
60 and above Non-assessable non-exempt income (NANE)1 Marginal tax rate less 10% tax offset
Preservation age to 59 Marginal tax rate less 15% tax offset Marginal tax rate (no tax offset)
Below preservation age Marginal tax rate (no tax offset) Marginal tax rate (no tax offset)

Note: For all non-zero tax rates, Medicare levy may also apply. 1. Please see section 7.14 for the modified taxation treatment of the taxable component of income in excess of $100,000 pa. paid from capped defined benefit income streams to members aged 60 or over.

15% tax offset

A 15% non-refundable offset applies where:

  • the taxable component (taxed element) forms part of the recipient's assessable income, and
  • the recipient is aged preservation age to age 59, or
  • the income stream is a death benefit, or
  • the income stream is a disability super benefit.
Calculating 15% tax offset

Tax offset = 15% x taxable component (taxed element)

Taxation of commutations from a superannuation income stream

Full commutations from a superannuation income stream are a lump sum superannuation benefit for tax purposes.

From 1 July 2017, partial commutations from a superannuation income stream are also a lump sum superannuation benefit for tax purposes and do not count towards the minimum annual payment requirement.

Prior to this date, partial commutations from eligible income streams were taxed as income stream benefits unless the member had made an election to treat the commutation as a superannuation lump sum.

For the tax treatment of superannuation lump sums, refer to

  • Section 7.2 where paid to the pensioner and where the income stream is not a death benefit income stream
  • Section 7.4 where paid to the pensioner and where the income stream is a death benefit income stream
  • Section 7.8 where rolled over.

Last modified: Wednesday, July 24, 2019