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Low Income Rebate for Low & middle income earners

Newbie

Views 1497

Replies 8

In the ATO website section on Indiviuals: Low and middle income earners it states

"The maximum tax offset of $445 applies if your taxable income is $37,000 or less."

Further on in the same section it also states

"If your taxable income ....does not exceed $37,000, you will be entitled to an offset amount of $255 on your tax payable.

Both these statements appear to me to be VERY confusing and contradictory. There is nothing to explain how these OFFSETS are calculated as ATO have removed ("decommissioned") the calculators, leaving individuals ignorant of how the tax system affects them.

I reach age 66 (Age Pension age) on 4th August 2020 and am currently paid a Disability Support Pension by Centrelink.

My questions are...

a) In what circumstances does the MAXIMUM tax offset of $445 apply amd how is that calculated ?

b) If my ONLY TAXABLE INCOME is a lump sum withdrawal from a Super Fund in its retirement phase, plus some interest from bank accounts and managed investments totalling $25,000 for the year what LOW INCOME TAX OFFSET applies ?

 

1 ACCEPTED SOLUTION

Accepted Solutions

Most helpful response

Devotee

Replies 7

There are 2 separate offsets here and should be calculated separately. Unfortunately both have "low income" in their names hence the confusion.

 

Offset 1: Low income tax offset - max $445 reduced by 1.5c per dollar over $37,000

Offset 2: Low and middle income tax offset - max $1080 - for income under $126,000

 

Say you earn $36,000 in taxable income for the FY18-19 year.

Income tax (casting aside medicare levy) is ($36,000 - 18,200) x 19% = $3,382

You will receive both offsets.

Offset 1: since you do not earn more than $37,000, you get the $445

Offset 2: since it does not exceed $37,000 you get the offset of $255

Your total offset is thus $445 + $225 = $700.

The tax payable is $3,382 - $700 =  $2,682

 

If your taxable income is $25,000 (assuming this excludes your super withdrawal since it should be tax free). Then you are entitled both tax offsets ie $445 + $225 = $700

 

ATO guide here

8 REPLIES 8

Most helpful response

Devotee

Replies 7

There are 2 separate offsets here and should be calculated separately. Unfortunately both have "low income" in their names hence the confusion.

 

Offset 1: Low income tax offset - max $445 reduced by 1.5c per dollar over $37,000

Offset 2: Low and middle income tax offset - max $1080 - for income under $126,000

 

Say you earn $36,000 in taxable income for the FY18-19 year.

Income tax (casting aside medicare levy) is ($36,000 - 18,200) x 19% = $3,382

You will receive both offsets.

Offset 1: since you do not earn more than $37,000, you get the $445

Offset 2: since it does not exceed $37,000 you get the offset of $255

Your total offset is thus $445 + $225 = $700.

The tax payable is $3,382 - $700 =  $2,682

 

If your taxable income is $25,000 (assuming this excludes your super withdrawal since it should be tax free). Then you are entitled both tax offsets ie $445 + $225 = $700

 

ATO guide here

Newbie

Replies 6

Thanks for your informative reply.

My Estimated income for June 2020 of $25,000 INCLUDES about $24,000 of the Super Withdrawal mentioned before.

My super fund has indicates that if I was to withdraw this amount TODAY about  $23,500 is "TAXABLE INCOME" while about $ 500 is referred to as "TAX FREE". The entire amount is described as "Unrestricted Non Preserved" and is split between taxable and tax-free as specified above. 

I understand the marginal tax rate on income over the Tax free threshold of $18,200 is 19 cents in the dollar.

Therefore taxable income of $25,000 would attract tax of $1,292 - i.e. 19% of the excess of $6,800 over the tax free threshold.

In addition to the $700 tax offsets you calculated earlier I also understand that a lump sum rebate may also apply to limit the tax payable on any assessable lump sums to 15%.

Would you please comment further on my assumptions please AND correct me if they are wrong ?

 

Taxicorn

Replies 5

@MichaelRDenne 

 

Just a couple of points for you.

 

(1) Your Disability support pension will be transferred to an Age pension when you reach pension age and as such will now be taxable.

https://www.humanservices.gov.au/individuals/services/centrelink/disability-support-pension/how-mana...

 

(2) f you are aged 60 or over and decide to take a super pension, all your pension payments are tax-free UNLESS you are a member of a small number of defined benefit super funds, or you receive a defined benefit pension over a certain limit. ... members of an untaxed super scheme (usually a public sector fund).

 

Your Taxed amount will be further broken down into Taxed Element and Untaxed Element.

If you were a member of a public fund then the untaxed element is money that was NOT taxed going in so it is taxed coming out regardless of age.

 

To calculate your taxable income you need to know if you were a member of a public fund (generally government jobs) and how much if any was the "Untaxed Element".

 

 

Newbie

Replies 4

Yes I am aware that from my 66th birthday my pension will become taxable. That occurs  AFTER 30th June 2020.

I am also aware of the Transfer to Age Pension Process, and am expecting contact from Centrelink in the months ahead.

My main interest in this forum is to estimate my possible tax liability should I decide to withdraw the whole of my super during the 2019-2020 Income Tax year - so that alone it will attract minimal tax compared to doing that AFTER 30th June 2020.

I do not intend to take any pension from my super account as the balance is so small.  I can do better by making a 100% withdrawal then adding the estimated amount to an existing managed investment account with the same company BEFORE 30th June 2020 plus I will benefit from lower administration fees as a result.

As stated previously I expect the amount of benefit to be something around $25,000 with ALL OF IT being described as "Unrestricted Non-Preserved".

The tax components show about $23,500 of this being taxable based on today's balance. So if by 30th June after having withdrawn the amount in full (say $25,000) I could expect $24,600 to be "taxable" i.e. assessable income for tax purposes.

With regard to the taxation treatment of the Lump sum Schedule 12 - Tax table for super lump sums makes a distinction between "Member benefit – taxed element of the taxable component" where the amount of tax withheld for people over age 60 is ZERO.

It then goes on to detail the "Member benefit – untaxed element of the taxable component" which for an individual aged 60 or over where the amount of tax withholding is either 17% or 47%.

Any other income for YE June 2020 would consist of bank interest and managed investment account income totalling no more than $1,000 for the year.

So could someone please estimate my tax liability based on $25,000 super withdrawal as described above, of which all but $400 is taxable for person aged 65, plus other bank interest and investment income not exceeding $1000. 

 

 

 

 

Taxicorn

Replies 3

@MichaelRDenne 

 

Tax on a Super Lump-sum withdrawal for somebody over 60 is 17% of the untaxed element up to a cap of 1.5.15 million and 47% for over 1.515 million.

 

So step 1 is to know the what is the breakdown between the "Taxed Element" and the "Untaxed Element" of your Taxable Component.

 

Newbie

Replies 2

Thanks for your reply.

I have contacted my super fund for details of taxed and untaxed elements.

My online Super account only gives the Taxable amount... but does not split it any further into taxed element and untaxed element hence I contacted them yesterday for some more precise detail.

The discussion with Super Fund about my personal circumstances resulted in this conclusion:-
As at  January 2020, there is no unpaid contributions tax for your account. This means that there would not be a taxable untaxed portion. Based on TODAY'S Super Account balance of $******.** where $***.** is  TAX-FREE and $******.** is TAXABLE amount, ALL of the TAXABLE AMOUNT would be classified as TAXED ELEMENT.
Contributions Tax was paid in FULL.
 
So for purposes of this exercise lets assume the total withdrawal is $25,000 of which $ 500 is Tax-Free and $ 24,500 is entirely "Taxed Element".

 

 

 

 

 

 

 

Taxicorn

Replies 1

@MichaelRDenne 

 

So based on 24,500 taxed element from the taxed amount and aged over 60 this would be tax free.

 

I know it may look complicated, but look at this flow-chart under the PURPLE 'Lump Sum Payments box and then the Taxable Component (Taxed) box and then aged 60 and over box..it says Tax Free.

 

*Broken link has been removed*

 

So this will all be tax-free as well as your DSP, your only taxable income before July 1, 2020, will be the interest and investment income.

 

 

Newbie

Replies 0

Many thanks again for your detailed reply.

 

I have bookmarked that link to "flow-chart under the PURPLE 'Lump Sum Payments box and then the Taxable Component (Taxed) box and then aged 60 and over box"

 

I will refer to it when the time comes to preparation of withdrawal from Super Fund and preparation of my 2020 Tax return.