Loading
TessieTessie(Newbie)Newbie
1 Sept 2025

My husband who is 57 has a SMSF and meets the requirements for permanent incapacitation due to his diagnosis of Younger Onset Alzheimer's Disease. He hasn't worked for over a year and receives no disability pension. I can only work casually as I am unpaid carer. Our accountant says that if we take the SMSF out as a lump sum it will be taxed at 22%. This will take away nearly a quarter of his superannuation. Is anyone aware of any way this can be avoided? We understand that if we leave it until he is 60 there is no tax on the lump sum. It just seems a little unfair that he is taxed so much because he isn't 60. He won't be able to enjoy a retirement later in life- he would give anything to not have this diagnosis and still be working.

321 views
2 replies
321 views
2 replies

All replies

YEP(Devotee)Devotee
1 Sept 2025

@TessieTessie Its not as bad as what you may think and either you misunderstood your accountant or they gave incorrect information and if they did I again suggest you talk to an SMSF specialist.


Your husbands total super balance will be made up of various components (tax free & taxable component - taxed element & taxable component - untaxed element). It would be unusal for most people to have a taxable component - untaxed element.


Tax rates that apply to super lump sum withdrawals for those under 60 are as follows:

  • The tax free component = no tax payable.
  • The taxed component - taxed element (which means concessional contributions) = taxed at your husbands marginal rate of tax or 22%, whichever is lower.

As you can see, only certain taxed components of a super balance are taxed, and furthermore those taxed components are usually a much smaller part of ones total super balance than the tax free component. Various components can be found in the SMSF accounts, and the "2025fy members statement" would be a good indicator if its been done.


See the below ATO webpage under the heading of " You're under your preservation age " (meaning under 60) ..


https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/withdrawing-and-using-your-super/early-access-to-super/tax-on-super-benefits#Ifyourageislessthanyourpreservationage

NikkiATO(Community Moderator)Community Moderator
3 Sept 2025

Hi @TessieTessie,


When a superannuation benefit is accessed due to permanent incapacitation before age 60, different tax rules apply.


There are a few other options you could explore:


Income Stream Option: Instead of withdrawing the full amount as a lump sum, consider taking part of the super as an income stream. If your husband has little or no other income, the effective tax rate on the income stream could be lower than 22%.


Partial Withdrawal: Withdrawing only the amount needed for immediate expenses could reduce the overall tax impact. The remaining balance can then be accessed after the age of 60, when it becomes tax-free.


Tax treatments can be complex, so working closely with your accountant or a specialist in superannuation matters is important to make sure you find the best approach for your family’s needs.

Liked by TessieTessie

Featured articles

What you need to know about early release of super

10 Apr 2025 · 4 min read time

How do I transfer super into my spouse's super fund?

8 June 2023 · 2 min read time

Claiming your departing Australia superannuation payment (DASP) online

28 Aug 2025 · 5 min read time

Top liked users

  1. Bruce4Tax

    (Taxicorn)

    3245 likes

  2. Taxduck

    (Taxicorn)

    2035 likes

  3. PayrollDeanne

    (Taxicorn)

    804 likes

  4. YellowPotato

    (Taxicorn)

    513 likes

  5. knaresbro

    (Devotee)

    358 likes

Top contributors

  1. Bruce4Tax

    (Taxicorn)

    10370contributions

  2. Taxduck

    (Taxicorn)

    4721contributions

  3. PayrollDeanne

    (Taxicorn)

    2040contributions

  4. YellowPotato

    (Taxicorn)

    1325contributions

  5. YEP

    (Devotee)

    837contributions

Loading
Permanent incapacity taxation rate | ATO Community