Taxation Of Benefits Examples

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

Sergeant Whitton resigned from the Air Force in 2001 at age 49 and chose to leave his entire Member Benefit with MilitarySuper. His Employer Benefit remained compulsorily preserved with MilitarySuper.

He worked in the private sector for six years and retires on his 55th birthday. He decides to take his entire Member Benefit as a lump sum and his entire Employer Benefit as a CPI-indexed pension.

His benefit consists of:
Member benefit of $125,000
Member contributions from after-tax salary	$50,000
Taxed Interest earned on Member contributions	$75,000
Employer Benefit of $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 Whitton 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 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
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	$50,000	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	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 $937 = $1,611
Gross Pension benefit	$20,833
Tax payable	$0
NETT (before Medicare Levy is applied)	$19,222

When Captain Arnell 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