I had no idea where my lost super was or the names of the funds. I just new it was scattered everywhere and I should definitely have more than $3,000 in my super. Australian Super Finder found all 7 of my funds and now my balance is almost $50,000. Thank you so much for getting my super back on track. ? Leonie, Thomastown VIC

Super Facts and Tips

SMSFs: Taking a lump sum from your superfund (5 Q-and-As)

Q: We have an SMSF with two members having pensions and accumulation accounts. We know that when you drawdown pension amounts, the amount decreases the pension balance according to the pre-existing tax-exempt component or taxable component, and whichever super contributions will go into the distinct accumulation account. Moreover, we know that when members permanently retire and are over 65, members can drawdown the entire balances of both the pension and accumulation amount in total.

With these situations satisfied (that’s, over 65 and retired), if a member only sought a lump sum payment, can the member submit the drawn-down lump sum payment from only the accumulation account, roughly making the balance zero instead of commencing another pension. Or, should we stop the current pension (balance goes back into the accumulation phase), and then commencing a new pension.

Alternatively, is there other situation wherein a lump sum payment can be drawn from an SMSF without affecting the super pensions? How much tax should be paid on the lump sum payment?

I have divided your inquiry into 5 parts:

• Can a lump sum be withdrawn from the accumulation account?
• Can a lump sum be withdrawn from the pension account?
• Will the pension stop (commute) when a lump sum is withdrawn from the pension account?
• Does the pension account’s lump sum cover towards the least pension payment?
• How’s a superannuation lump sum payment taxed?

We can only give you general info on the aforementioned questions. For assistance on your own circumstances, it is suggested you talk to your accountant/adviser about the SMSF payment options.

Prior to answering the questions above, as well as for other readers’ benefit, I will summarize the general rules relating to SMSFs handling both accumulation and pension accounts.

1. Can a lump sum be withdrawn from the accumulation account?
The short response to this query is: as long as a condition of release is met, then a person can have access to super benefits held within the accumulation phase as a lump sum payment.

Another important factor to think through when choosing to withdraw lump sum payments from the accumulation account is the various tax treatment of such accounts compared to pension accounts. Super accounts in the pension phase enjoy tax-free earnings, while super accounts in the accumulation phase pay 15 percent tax on account earnings. If taking a lump sum needs the fund assets sale, then whichever capital increases from the sale are subject to earning tax in accumulation phase, but are tax-free in pension phase. The various tax treatment of earnings could as well prompt people to decide to take lump sum payment from the account (accumulation account) where the earnings are taxed, instead of from the account (pension) where earnings are tax-exempt.

2. Can a lump sum be withdrawn from the pension account?
Yes, it’s possible for a lump sum to be withdrawn from an SMSF pension account. As stated by the ATO, the tax compliance and consequences of this certain decision relies on whether a member plans to:

• partially commute the super pension (lump sum is to be paid and pension account will continue, plus, the lump sum payment counts towards the least pension payment)
• fully commute the super pension (the pension terminates, though the pro-rated least pension payment should be settled, and the succeeding fee of the remaining account balance is deemed as a super lump sum payment for tax purposes).

Note: If a member partially commutes the pension, for the payment to be deemed as a super lump sum, the member should choose the partial commutation’s payment not to be deemed as a super income stream benefit. Bear in mind that the choice should be made prior to any payment occurs (refer to ATO Taxation Ruling TR2013/5). If this election is not made, the payment is deemed as a payment.

3. Will the pension stop (commute) when a lump sum is withdrawn from the pension account?
Yes and no.
Yes, in this case: As stated by the ATO, yes, the pension will stop in the following situation: “superannuation income stream stops when an appeal from a dependent beneficiary or a member to commute their entitlements fully to future super income stream benefits (in exchange) for a privilege to a lump sum commences” (ATO TR 2013/5).
If the pension stops, the settlement made is a super lump sum for purposes such as tax.
On the subject of a partial commutation, if a choice isn’t made before making the payment, treating the payment as a lump sum, then, still, this certain payment will be deemed a super income stream benefit (ATO TR 2013/5). Somewhat different rules are applied to partial commutations takings prior to July 2013 (refer to paragraph 48 of TR 2013/5).

4. Does the pension account’s lump sum cover towards the least pension payment?
As stated by the ATO, a lump sum made by means of a partial commutation of a pension account counts toward the least annual amount needed to be settled. Payments made under these situations will count toward the minimum requirements of pension payment.
The payment by means of a partial commutation is counted whether it’s paid in specie or in cash. The term “in specie” with regards to super indicates a non-cash fee, precisely, an asset transfer.

5. How’s a superannuation lump sum payment taxed?
Taxing a super lump sum depends on the fund member’s age, as well as the super benefits’ tax components.
If you are under 60, you could pay certain tax on a lump sum’s taxable component, although the tax-exempt component is tax-exempt at any age. If you are under 60 years old, the first $195,000 (for year 2015/2016) of the taxable component is tax-exempt when taken as lump sum, but for particular benefits paid to a few public servants. The tax-exempt limit of $195,000 is the low-rate cap (a lifetime) cap, meaning if you’ve used this cap before, then the previous payment will reduce your cap. Note that $185,000 was the low-rate cap for the year 2014/2015.
The tax-exempt component stands for your after-tax (non-concessional) contributions, and if you were a fund’s member before July 2007, some other components of the super benefit. The tax-exempt component is tax-free at all times, irrespective of your age once you retire.
If you are 60 years old or over, a lump sum’s taxable component is tax-exempt, except for particular benefits paid to a few public servants. Note: The choice to partially fully commute super pensions has effects for the part of taxable and tax-free components of super benefits. If super pensions are considered to carry on when the payment for lump sum is made, then the amount deemed as a lump sum payment utilizes the part of taxable and tax-free components that were present when the pension originally started. If a pension has stopped (a full commutation), then the taxable and tax-free components should be calculated the moment the lump sum is made.
Anybody considering such choices, should consult their accountant, or call the ATO to confirm the tax issues and compliance surrounding pension and lump sum payments.

If you want to learn more about SMSFs, visit our site at - www.australiansuperfinder.com.au

All information on this website is of a general nature only. We have not taken into account your financial situation, needs or objectives. You need to make up your own mind and ascertain yourself if it is right for you. We recommend you read the product disclosure statement(s) and the financial services guide before making any financial decision.

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