Taxation of benefits from 1 July 2007

How will superannuation benefits be taxed from 1 July 2007?

For most people aged 60 or over who receive super benefits from a taxed source (this is most funds) that payment of a benefit as a lump sum, or income stream (such as a pension) will be tax-free.

I am a retired public servant. Will my superannuation pension be tax-free?

No. The benefits of many retired public servants are paid from superannuation schemes that don’t pay tax or from a Government’s revenue. These sources are sometime called untaxed sources. If your super benefit comes from an untaxed source, it will be taxed when you receive it regardless of your age. However, if you are aged 60 or over when you receive a superannuation pension, you may be entitled to a 10% tax offset that will reduce the tax payable.

The regulations explaining how these changes will work are not yet law. Our information will be updated after the regulations are made.

Will I have to lodge an income tax return?

When you are 60 years or over, you don’t have to declare tax-free income paid from taxed sources of superannuation. If your only source of income is superannuation benefits from a taxed source you won’t need to lodge an income tax return.

You will have to lodge an income tax return if you have income from other sources, including from investments or untaxed superannuation sources, such as some public service super funds.

Is there a minimum or maximum amount I have to withdraw from super each year?

Your fund may allow you to choose the amount of your superannuation income each year. Once you start a pension, a minimum amount is required to be paid as a benefit each year to ensure your capital is generally drawn down over time. There is no maximum amount other than the balance of your super account.

The following table shows minimum annual pension for each age group:

Age	Minimum withdrawal as a % of the account balance
Under 65	4%
65–74	5%
75–79	6%
80–84	7%
85–89	9%
90–94	11%
95 or more	14%

The regulations explaining how these changes will work are not yet law. Our information will be updated after the regulations are made.

Do I have to cash out my super when I reach a certain age?

No. The superannuation law will no longer require your benefit to be paid at a certain age. However, your payments are subject to the rules of your particular fund. The requirements for compulsory payment of benefits to members over age 65 who do not meet the work test, and compulsory payment from age 75 have been removed from the law.

The regulations explaining how these changes will work are not yet law. Our information will be updated after the regulations are made.

What is happening to reasonable benefit limits?

Reasonable benefit limits will be abolished from 1 July 2007. You will still need to include amounts exceeding your reasonable benefit limit as excessive amounts in your tax return for benefits received before 1 July 2007.

Do “transition to retirement“ measures still apply?

Since 1 July 2005 people at ‘preservation age’ have been able to take their benefits as a non-commutable income stream while they are still working.

The transition to retirement rules will be amended to include pensions meeting the new minimum standards. From 1 July 2007 transition to retirement income streams will allow no more than 10% of the account balance (at the start of each year) to be withdrawn in any one year. The existing non-commutability rules for income streams commenced under the transition to retirement measure will continue to apply. Income streams started before 1 July which comply with the transition to retirement rules at the time, will satisfy the new requirements.

The regulations explaining how these changes will work are not yet law. Our information will be updated after the regulations are made.

When can I start taking my superannuation?

When you reach preservation age and retire, or turn 65, even if you have not retired from the workforce, you can access your superannuation. The ‘preservation age’, however, will increase from 55 to 60 between the years 2015 and 2025.

Will the new rules affect complying income streams started before 1 July 2007?

No, you still won’t be able to commute them into a lump sum. The payments will be tax-free when paid from a taxed source to a person aged 60 or over.