Removal of election to treat super income streams as lump sums
Individuals will no longer be able to elect to treat super income stream benefits as lump sums for tax purposes as of 1 July 2017.
For those who are receiving a super income stream and normally would have made this election, you can no longer access the super lump sum low rate for payments from your income stream. Therefore, the amount of tax payable on your super income stream may change.
Prior to 1 July 2017, individuals could elect to treat one or more payments from a super income stream as a super lump sum for tax purposes to take advantage of tax concessions available when between your preservation age and 60 years old.
If you have made this election (or make it before 1 July 2017), it changes the tax treatment of the payments because you have been able to access the low rate cap (currently $195,000). Super lump sums up to this cap are tax-free. The cap applies to reduce the amount of tax you pay on the taxed component of your benefit through a super lump sum tax offset.
If you are making one or more elections to treat super income stream benefits as super lump sums for tax purposes prior to 1 July 2017, consider how the changes will affect your pension payments, i.e., your super fund may start to withhold tax from your payments. Review your arrangements to elect to treat income stream benefits as super lump sums for tax purposes and consider any resulting income tax consequences.
After 1 July 2017 if you are receiving a super income stream (including a disability income stream or TRIS) you will no longer be able to treat periodic payments from your super income streams as super lump sums for tax purposes. Instead, they will be taxed as income stream benefits. Under the PAYG rules, your fund may need to withhold more tax from your payments.
If you are considering commencing a super income stream, be aware that periodic payments received from a super income stream will be taxed as income stream benefits. Please contact our office if you are considering commencing a super income stream after 1 July 2017 or require further assistance.