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Tax on lump sum payments after retirement at preservation age

Newbie

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Replies 5

Hi,

 

I have a question on taking a lump sum payment from my superannuation if I take an Early Retirement package from my workplace. I will have reached preservation age but be under 60. I am not planning to work more than 10 hrs /week. If I take a payout from my workplace as part of an early retirement scheme and it is tax free and I then take out a lump sum from my superannuation in the same financial year will this have any effect on the tax of my early retirement package? How will the lump sum payment be taxed as it will be below the low rate cap. I will also have 6 months of wages in 2020/21 financial year from July to December so don't want to do anything that will put me in a higher tax bracket.  Thanks.

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Devotee Registered Tax Practitioner

Replies 4

 I will have reached preservation age but be under 60. I am not planning to work more than 10 hrs /week.

 

Then you will meet a condition of release when you cease work  =  you can access your super.

 

 How will the lump sum payment be taxed as it will be below the low rate cap.

 

No tax unless it is comSuper or similar  -  check with the fund.

 

 

5 REPLIES 5

Most helpful response

Devotee Registered Tax Practitioner

Replies 4

 I will have reached preservation age but be under 60. I am not planning to work more than 10 hrs /week.

 

Then you will meet a condition of release when you cease work  =  you can access your super.

 

 How will the lump sum payment be taxed as it will be below the low rate cap.

 

No tax unless it is comSuper or similar  -  check with the fund.

 

 

Newbie

Replies 3

Hi - I checked with UniSuper about taking a lump sum from my superannuation after taking a voluntary early retirement payout. They said taking a lump sum from super can impact the tax free portion of my VER. I have made an appointment with a tax agent for next week but want to also double check this with the ATO blog. I will be getting $46 183 as a tax free payment as a VER. (I am allowed $120 909 tax free as I have worked for 20 years) I will have $4707 in leave which will be taxed at $2045. I want to also take a lump sum out of my superannuation in same financial year as the VER. I will use this to pay out a personal loan and to put the rest into a mortgage to reduce it down. I was planning on taking about $100 000 frm my superannuation but can take less. Uni Super said taking the lump sum (even though I will be at preservation age and will send in a form stating I am retiring and want to access my super) may cause me to pay tax on the tax free portion of the VER package. Can you explain how taking a lump sum from my superannuation when I fulfill all the requirements for doing so could impact on tax for a VER? Is there a limit I can take out of superannuation without it impacting on the VER? I will not be going over the superannuation lump sum cap. Can you explain how lump sum payments are taxed or seen as income/assets? Will this be the case if the lump sum is paying down debts and not in a bank account earnign interest? I am trying to ring the ATO to get advice but got to the top of queue and the phone cuts out. Thanks - Donna

Community Moderator

Replies 2

Hi @DOK62

 

It sounds like your super fund may be thinking about something else. Based on the information you've provided, your entire early retirement scheme payment should be tax-free. This is because it is well within your tax-free limit.

 

Your tax-free early retirement scheme payment won't form part of your taxable income because it is tax-free. Receiving a super lump sum in the same financial year doesn't affect this.

 

The taxation of your super lump sum also won't be impacted by your tax-free early retirement scheme payment. In other words, neither payment affects the taxation (or non-taxation) of the other.

 

How you spend your super lump sum is up to you. The retirement condition of release doesn't restrict how the money is spent. What you do with the money also doesn't change how it gets taxed.

 

The super lump sum tax table shows how the taxable component (taxed element, untaxed element or both) of your lump sum will be taxed (or not taxed). These are the maximum tax rates. The tax-free-component is tax-free. When we process your tax return, we'll apply an offset (if necessary) to ensure you're charged no more than the applicable maximum rate.

Newbie

Replies 1

Thanks ChrisATO,

 

Yes that was my understanding also Unisuper have said this twice - at a seminar and when I spoke to them so that got me worried as I will need to take that lump sum asap after retiring.

 

I will follow your advice and that of my tax agent after I see him on on Monday.

 

From what you say - as I am retiring and at preservation age I am allowed to make a withdrawal to the low rate cap of $215000 from my accumulation as a lump sum - therefore taking $100 000 will be ok and not impact me taxwise. This is not treated as income for tax purposes.

The super lump sum withdrawal it has nothing to do with the $120 909 tax-free limit for my VER and has no impact on this figure and will not impact my tax free VER payment.

 

In other words they are 2 seperate entities and don't relate to each other.

 

Thanks - Donna

ATO Community Support

Replies 0

Hi @DOK62,

 

Yes, you have the correct understanding.

 

All the best.