Superannuation changes: Option to treat a pension payment as a lump sum payment for tax and anti-detriment provisions removed

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Starting 1 July 2017, Australians can no longer treat several superannuation pension payments as lump sums for tax purposes.

Those under 60 years old were previously allowed to treat the lump sum payment as a minimum pension payment, provided the requirements were met. The individual could use the low-rate cap which enabled tax-free payments of the taxable component of a lump sum up to a lifetime threshold of $195,000 and $200,000 for the 2017/2018 year.

Meanwhile, super funds can no longer pay a refund of an individual’s lifetime superannuation contributions tax payments into an estate or claim a tax deduction for this payment.

According to the memorandum, the anti-detriment provisions allow an income tax deduction “to a complying superannuation fund, life insurer, or complying approved deposit fund that pays an increased superannuation lump sum because of the death of a member for the benefit of their spouse, former spouse or child, to compensate for income tax paid by the fund in respect of contributions made for the member during their lifetime”.

The amount a super fund can deduct is broadly the amount by which the benefit is greater than it would otherwise be to compensate for the income tax that was payable on the member’s contributions, divided by the income tax rate that applies to assessable contributions to the fund.

Anti-detriment payments are payable only when the death benefit is paid as a lump sum.

Reversionary pensions and death benefit pensions have to be commuted for anti-detriment payment to be allowed. Anti-detriment payments are available for many large super funds and SMSFs. The government banned these to fine-tune the superannuation rules and not because members are abusing it.

Related:  Major changes to Tax rates, Superannuation and Pensions

For more information about superannuation, contact a Specialist to discuss your particular circumstances.

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Source: Super Guide

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