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Re: Super Lump Sum withdrawl, preservation-59yr, Medicare levy, surcharge and Private Hosp rebate

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Newbie

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Took redundancy 12Mths ago, have now reached my preservation age, looking to a Lump Sum Super withdraw from my accumulation account. I understand the tax free & taxed component (which has no untaxed element).which for 2019 tax there is  $205k low cap threshold and I have no super withdraws. Now I intend draw Tax free & Taxable components to wipe out all the $205k low cap limit threshold.  Myself  57 & wife 52yr are not now working, are self-supporting not claiming any government centre link payment, living from savings, and only income is from interest, dividends and imputation credit, both of us taxable income just over the $18,200 tax free margin bracket.

 

ATO tax site, to me is not quite sure, or completly clear on my reading so questing to confirm advise on re the Lump Sum super withdrawal tax implication as discussed above.

  • The $205k Low Cap threshold withdrawn from Taxable element is it shown? @ Income Quest 8 “taxed element”?
  • The Tax free Component and the $205k whole of cap threshold from Taxed Element of taxable component will all be tax free and will not put other income into higher taxable margin bracket as such?
  • Will not be as additional taxable income for Medicare levy, Medicare Surcharge levy
  • Will not push Private hospital cover into higher tier’s and reduce or wipe out discount rebate.
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Devotee

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Newbie

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Yeah thanks mate, have read many time's, yet still not quite 100%,and still scratching with issue below ?

  • Concerned how Super lump sum payment, will effect Private hospital cover premium rebate? eligibility?  Now if  the Super lump sum Taxable component payment withdrawal up to the $205k low rate cap, is included or excluded from calculations? in the year assessable / taxable income (test ?) to the Private Hosp cover rebate claim??? " But think I may have sorted it

https://www.ato.gov.au/Individuals/Medicare-levy/Private-health-insurance-rebate/Private-health-insu...

  • Reading Private health insurance rebate eligibility > have an income for surcharge purposes that is less than the Tier 3 income threshold. While was thinking I am taking the wrong track as it being surcharge? but more I re-read does now confirm is for :
  • To be eligible for the private health insurance rebate, your income for surcharge purposes must be less than the Tier 3 income threshold. Tier 3 is the highest income threshold for both singles and families.
  • Income for surcharge purposes is used to test your eligibility for the private health insurance rebate. It is not the same as your taxable income.

Income for surcharge purposes includes:

  • your taxable income (including the net amount on which family trust distribution tax has been paid)
  • your reportable fringe benefits (as reported on your payment summary)
  • your total net investment losses (including both net financial investment losses and net rental property losses)
  • your reportable super contributions (including reportable employer super contributions and deductible personal super contributions).

If you are between your preservation age and 59 years old, you subtract from the total (above) any taxed element of a super lump sum (other than a death benefit) which you received that does not exceed your low-rate cap.

Your family income for surcharge purposes is the combination of your income and that of your spouse, using the above mentioned criteria.

 

So to me, the actual withdrawn Super lump taxable amount up to the low cap rate, while is shown in taxable income, but for calculations of rebate purpose, is taken back out (subtracted). So in essence the withdrawn lump sum taxable component from the "low cap rate" will not be detrimental to the Private hospital cover rebate.

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I believe or at least think I understand rest of my questions re below:

  • The application of the low rate threshold for super lump sum payments is capped asTable 9: Low rate cap 2018–19, Amount of cap $205,000
  • You must include the taxable component of your super payment as assessable income on your tax return. You don't need to enter the tax-free component of your super payment on your tax return
  • If you're between your preservation age and 60 years old, and receive a lump sum super benefit that includes a taxable component, this is assessable income you must include in your tax return. This is the case even if the amount you receive is below the low-rate cap amount and zero tax has been withheld by your fund.
  • Tax free & Taxable components must be withdrawn in equal  % proportions.
  • The "Tax free component" withdrawn is All Tax free includes, No Medicare levy
  • The "Taxed element " of Taxable component  up to the $205k low-cap will be Tax free & No Medicare levy.
  • As my super is held in taxed fund it has No "Untaxed Element" component, so this is not a concern.

Hope if you will confirm my my interpertation 

 

 

Newbie

Replies 0

Hi Lawrence,

I don't have any answers for you but I can understand your questions, so maybe I can explain the questions in a different way so we can both be informed.

In my opinion, the detail and explanation of the lump sum tax (as the link above directed) is not clear for those who reach the withdrawal age but not yet 60.

There is a $205k lifetime cap (indexed) where taxed amounts withdrawn are reduced tax. Say I withdraw $200k.

These are the questions I don't have answers for:

The amount of $200k has to be added to the tax return but there isn't anywhere to reduce the taxable income with this lifetime cap, so my taxable income in that year will be $200k. How do I then have nil tax if my taxable income is $200k but reduced by the cap?

How is the medicare levy applied in this instance? How is the high income levy applied? How does this affect my health benefit? How does it affect Centrelink, Family Payments, Child Care Subsidy, Child Support, now that my taxable income for this year is $200k? etc, etc.

I hope someone in the community can explain...

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