A superannuation technical manager has cautioned advisers not to fall into the tax treatment trap for individuals aged between preservation age, now 60, and 59 years looking to access their retirement savings benefits as a lump sum.
Specifically, BT Financial Group advice strategy and technical specialist Tim Howard was referring to the treatment of the taxable component of a lump sum payment for clients in this age bracket.
To this end, the element of the lump sum requiring particular attention is the first $235,000 of the payment. This amount is taxed at 0 per cent with the remainder of the taxable component to be taxed at 15 per cent.
“That zero tax rate is not tax-free. It’s taxed at 0 per cent. So any lump sum under that low rate of $235,000 is still taxable income, it will still [have to be included in the client’s] tax return, will be offset down to zero, but may impact other calculations in relation to their taxable income,” Howard told attendees of today’s BT Academy technical webinar.
He pointed out the other tax calculations to which he was referring include eligibility for the low-income tax offset and the founding tax benefit.
“So it’s just important to remember that if you have clients in what is these days a really thin [demographic] band, that a payment they take as a lump sum may still need to be included in their [personal] tax return,” he noted.
According to Howard, practitioners need to be vigilant of clients who have not quite reached preservation age because the application of this threshold is not as straightforward as it may appear at face value and will bring into play the aforementioned tax considerations.
“From 1 July this year, preservation age will be for people who are turning 60. However, you might still have clients who turned age 59 in the last financial year, whose preservation age was 59 when they reached that [age], but they’re yet to turn age 60. [It means] they’re in a position where [they are between 59 and preservation age],” he noted.