Taxation Of Benefits Examples

Taxation of Benefits for a MilitarySuper Contributing Member at age 55 (Employer Benefit converted to 100% pension)

Sergeant Staples retires from the Air Force on his 55th birthday.

His benefit consists of:
Member benefit available as lump sum:
Member contributions from after-tax salary	$50,000
Taxed Interest earned on Member contributions	$75,000
Employer Benefit $250,000
Taxed Productivity contributions	$30,000
Taxed interest earned on productivity contributions	$45,000
Untaxed Employer Benefit	$175,000
Ancillary Benefit of $0
TOTAL BENEFIT	$375,000

Sergeant Staples takes his Member Benefit of $125,000 as a lump sum.

He converts his entire $250,000 Employer Benefit into a CPI-indexed pension of $20,833 per year.

Tax treatment before 1 July 2007
Lump sum benefit of $125,000	Amount	Tax Treatment
Member’s after-tax salary contributions	$50,000	Tax Free

Taxed Interest earned on Member contributions	$75,000	0% tax up to $135,590
Untaxed Employer Benefit	$250,000	30% tax ($135,591 to $678,149)
Total tax payable on lump sum	$0
Gross Lump Sum	$125,000
Tax payable	$0
NETT (before Medicare Levy is applied)	$125,000
Pension benefit of $20,833	Amount	Tax Treatment
Untaxed Employer benefit	$14,583	Marginal Tax Rate
Taxed productivity contributions plus interest	$6,250	Marginal tax rate less 15% tax offset (offset is $6,250 x 15% = $937)
Total tax payable on pension	$2,548	less offset of $1,249 = $1,611
Gross Pension benefit	$20,833
Tax payable	$1,611
NETT (before Medicare Levy is applied)	$19,222

Tax Treatment after 1 July 2007
Lump sum benefit of $125,000	Amount	Tax Treatment
Member’s after-tax salary contributions	$14,583	Tax Free
Taxed Interest earned on Member contributions	$75,000	0% tax up to $140,000
Total tax payable on lump sum	$0
Gross Lump Sum	$125,000
Tax payable	$0
NETT (before Medicare Levy is applied)	$125,000
Pension benefit of $20,833	Amount	Tax Treatment
Untaxed Employer benefit	$14,583	Tax-free
Taxed productivity contributions plus interest	$6,250	Marginal tax rate less 15% tax offset(offset is $6,250 x 15% = $937)
Total tax payable on pension	$2,548	less offset of $1,249 = $1,611
Taxed productivity contributions plus interest	$6,250	Marginal tax rate less 15% tax offset(offset is $6,250 x 15% = $937)
Gross Pension benefit	$20,833
Tax payable	$0
NETT (before Medicare Levy is applied)	$19,222

When Sergeant Staples reaches age 60
Pension benefit of $20,833	Amount	Tax Treatment
Untaxed Employer benefit	$14,583	Marginal tax rate less 10% offset (offset is $14,583 x 10% = $1,458)
Taxed productivity contributions plus interest	$6,250	Tax-free
Total tax payable on pension	$1,300 less offset of $1,458 = $0
Gross Pension benefit	$20,833
Tax payable	$0
NETT (before Medicare Levy is applied)	$20,833

* Tax liability assumes this pension is his only source of taxable income