Taxation treatment of lump sums

Initially I’d like to say thank you for all the great information. It is really helping me to manage my SMSF.

My question relates to the taxation treatment of a lump sum from a SMSF for a person who is retired, and is in the 55-59 age category.

I understand that any lump sum is proportioned between your taxable and non-taxable percentage, and that the first $180k of your taxable component is in fact tax free.

My question is, is the lump sum still added to your taxable income for income tax purposes, and if so what are the implications? For example, if it is added, I guess you would have to pay the Medicare levy (if income exceeds $20542) and you’d lose any low income supplement (again if income exceeds the tax free threshold).

A:  



  • Your tax-free component is tax-free

  • Your low rate cap of $185,000 – in 2014/15 - is also tax-free

  • The remainder of the taxable component is taxed at 15% plus Medicare Levy (which now also includes the NDIS levy)


The low rate cap is reduced by previous benefits received.


All of the taxed element (including the low rate cap) is included in your income for tax purposes. You then receive a tax offset to bring your tax rates on these benefits to what they should be. “Super lump sums are considered to be in the top 'slice' of a person's total assessable income. Therefore, super lump sums will not push other assessable income into a higher than normal tax bracket,” says the explanatory memorandum released when the amending legislation was introduced into Parliament.



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