Paying Benefit From Your SMSF – Lump Sum
A Lump Sum Benefit Withdrawal is simply a payment from an SMSF in a lump sum, as opposed to a withdrawal paid out over a period of time, like a Pension or a TTR . A Lump Sum benefit is a one-off payment from the SMSF to its Member, who has satisfied a condition of release – for example, retirement or death and lump sum payments to the Trustee of a deceased estate.
Generally, you are eligible to access a Lump Sum withdrawal without restrictions once you have turned 65, or you have reached the preservation age, and you are retired.
If you have commenced a Pension from your SMSF, you can still take Lump Sum withdrawals once you have turned 65 or you are between 55 and 64 and retired. There is no restriction to the amount that you take as a lump sum.
The tax consequences of taking more than $200,000 (for 2017-18 and indexed each year) as a lump sum is discussed below.
To download a Lump Sum Pension Minute template, please click on the link below:
Personal Income Tax Considerations
There are 2 scenarios that can happen:
- For Members who are up to 60 years old, the SMSF must withhold tax from benefit payments, both as Pensions or Lump Sums.
- The SMSF is also required to withhold tax for a Member who is 60 years and over if their benefit payments contain an untaxed element.
- Note that the taxable component of your Lump sum withdrawal is tax-free up to the low-rate threshold ($200,000 for 2017-18 and indexed each year). Amounts over the threshold will be taxed at the rate of 15% (plus Medicare Levy).
- No withholding tax is required from the benefit payments if the Member
- Is over 60 years old and the benefit is from a taxed source.
- Has died and a benefit is paid to a dependent beneficiary as a Lump Sum.
- Has a terminal medical condition.
- Was a member of the defence force, police or protective service and died in the line of duty and a Lump Sum payment is made to a non-dependent.
For more detailed information on how tax is applied on benefit payments, please refer to table A on page 4 of the Schedule 33 – PAYG withholding (ATO).
Lump Sum Paper Work
To withdraw your super as a Lump Sum you / the trustee first needs to determine the components of the super balance, preserved, taxable/non taxable, etc, the amount of the super account, and the strategies to withdraw, you then have the information you will need to complete the documentation to withdraw as a LUMP SUM or PENSION/TRIS or both as follows:
The following paper work is required:
- Obtain and review your Trust Deed to ensure nothing prevents trustee/you paying a TRIS.
- Prepare a letter from the member to the trustee requesting a lump sum prepayment statement
- The Trustee complete a ATO prepayment statement- part A (not compulsory but best practice) which details the components of the super benefit and affords the member to seek advice re the treatment of the payment
- The member return ATO prepayment statement- Part B OR the member prepare a letter to the trustee stating how they want to be paid, for example whether it will be in cash, in specie or both
- A PAYG payment summary superannuation (lump sum), one copy to be given to the member with payment and the ATO copy lodged within 14 days of payment. Not required for persons 60 or more as no tax payable, unless from an untaxed source
- If receiving part of the lump sum as property then a minute from the trustee detailing the asset and its value that is being vested to the member in specie.
- Prepare the accounting records – entries to reflect these payments making sure the appropriate components are changed in accordance with the proportionate rule.
From 1 July 2018 the Tax Office introduced a new reporting regime for Members with pension accounts, this is referred to as TBAR. If Members, take out a lump sum withdrawal, it should be reported to the ATO by lodging TBAR. When instructed we can lodge a TBAR on your behalf.
See our TBAR page for detailed info on reporting events and times frames.