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Taxation Of Benefits Examples

Taxation of Benefits for a MilitarySuper Preserved Benefit Member at age 60 (100% lump sum)

Sergeant Walters resigned from the Air Force in 2001 at age 54 and chose to leave his entire Member benefit with MilitarySuper. He worked in the private sector for six years and retires on his 60th birthday.

His benefit consists of:
Member benefit of $100,000
Member contributions from after-tax salary $35,000
Interest earned on Member contributions $65,000
Employer Benefit of $250,000
Taxed Productivity contributions $35,000
Taxed Interest earned on productivity contributions $15,000
Untaxed Employer Benefit $200,000
Ancillary Benefit of $0
TOTAL BENEFIT $350,000

Sergeant Walters takes his Member Benefit of $100 000 as a lump sum. He also decides to take his entire $250 000 Employer Benefit as a lump sum.

His total lump sum benefit is $350 000.

Tax treatment before 1 July 2007
Lump sum benefit of $350,000 Amount Tax Treatment
Member's after-tax salary contributions $35,000 Tax Free
Total tax-free component $35,000
Interest earned on Member contributions (Taxed) $65,000 0% tax up to $135,590 15% tax over $135,590
Taxed productivity contributions $35,000
Taxed Interest earned on productivity contributions $15,000
Total taxable component from taxed source $115,000
Untaxed Employer Benefit $200,000 15% tax up to $135,590 30% tax ($135,591 to $678,149)
Total taxable component from untaxed source $200,000
     
Taxation on lump sum    
Benefit component Tax payable  
Tax-free component $0  
Taxable component from taxed source $0 Remaining threshold is $135,590-$115,000 = $20,590
    Taxable amount below threshold is $20,590 $20,590 x 15% = $3,088
Taxable component from untaxed source $56,911 Taxable amount above threshold is $200,000-$20,590=$179,410 $179,410 x 30% = $53,823 $53,823 + $3,088 = $56,911
Gross Lump Sum $350,000  
Tax payable $56,911  
NETT (before Medicare Levy is applied) $293,089  

The tax Threshold of $135,590 is applied over both the taxed and untaxed portions of the benefit. In the above example $115,000 of the threshold has been used for the taxed amount therefore leaving a remaining threshold of $20,590 that is to be applied against the untaxed part of the benefit.

Tax Treatment after 1 July 2007
Lump sum benefit of $350,000 Amount Tax Treatment
Member’s after-tax salary contributions $35,000 Tax Free
Total tax-free component $35,000
Taxed Interest earned on Member contributions $65,000 Tax-free
Taxed productivity contributions $35,000
Taxed Interest earned on productivity contributions $15,000
Total taxable component from taxed source $115,000
Untaxed Employer Benefit $200,000 $15% tax up to $1 million
Total taxable component from untaxed source $200,000
TAXATION OF BENEFIT    
Benefit component Tax payable  
Tax-free component $0  
Taxable component from taxed source $0  
Taxable component from untaxed source $30,000 $200,000 x 15% = $30,000
Gross Lump Sum $350,000  
Tax payable $30,000  
NETT (before Medicare Levy is applied) $320,000