Withdrawals

The tax payable on withdrawals from the SMSF will depend on your age, the type of benefit that is withdrawn, the form in which the benefit is paid (i.e. lump sum or income stream) and the components of your benefit (i.e. tax-free or taxable).

All benefits will have a taxable and/or a tax-free component, which is generally dependent on whether the amount has been taxed within the SMSF. For example concessional contributions are taxed on the way into the SMSF and will form part of the taxable component, while non-concessional contributions are not taxed on the way into the SMSF and therefore form part of the tax-free component. Generally, no tax is payable on the tax-free component of a benefit while the taxable component of a benefit will be taxed depending on how the benefit is paid (i.e. as a lump sum or income stream).

Lump Sums

Below is a summary of how the taxable component of a lump sum benefit is taxed.

Income component derived in the income year Age at the date payment is received Amount subject to tax Maximum rate of tax (excluding Medicare levy)
  Under preservation age Whole amount 20%
  $25,000 Amount up to the low rate cap amount [$175,000 for the 2012-13 financial year] Nil
  At or above preservation age and under 60 Amount above the low rate cap amount [$175,000 for the 2012-13 financial year] 15%
Member benefit – taxable component – taxed element Aged 60 or above Nil Nil
Death benefit lump sum benefit paid to non-dependants – taxable component – taxed element Any Whole amount 15%
Death benefit lump sum benefit paid to dependents – taxable component – taxed element Any Nil Nil

Income Streams


Below is a summary of the tax payable on the taxable component of a benefit that is paid as an income stream.


Age of recipient Applicable tax rate
Age 60 or above Nil
At or above preservation age and under 60 Marginal tax rate of the recipient. Tax offset of 15% is available
Under preservation age Marginal tax rate of the recipient. Generally no tax offset is available unless the benefit is a ‘disability super benefit’.

Planning for the future

Setting up an SMSF is about more than just organising the paperwork to get started – it’s about planning for the future. We recommend you, and the SMSF’s members, consider things such as death benefit nominations and insurance.

Death benefit nominations

A death benefit is a payment made from a super fund on the death of a member. It’s usually paid to either:

  • one or more of the member’s dependants (such as a spouse or child); or
  • Their estate.

In some cases, it may be paid to a non-dependant.
If the SMSF’s trust deed permits, a member can nominate who they want their death benefit paid to, by way of a death benefit nomination.
A death benefit nomination is a notice given to the trustees setting out who to pay the death benefit to and in what proportion. It is either:

  • binding – it directs the trustees to pay the member’s death benefit to a legal personal representative or dependant; or
  • Non-binding – it notifies the trustees of the member’s preferred beneficiaries, leaving the trustees to make the final decision.

If your SMSF does not have a valid binding nomination for a member, their death benefit is paid according to the SMSF’s trust deed, with the trustees being guided, as appropriate, by any non-binding nomination.

Insurance

You should also consider arranging insurance cover to protect your SMSF’s members (or their dependants) against death, injury, ill-health or loss of income due to sickness and injury. Insurance premiums your SMSF pays may be tax deductible. We recommend you seek professional financial advice to help you with this decision.