How tax applies in retirement
Now that you’ve retired, it’s worth learning as much as you can about how tax applies to your income and investments.
On this page you’ll find general information about the tax treatment that applies when you have either a Retirement Income Allocated Pension or Retirement Income Term Allocated Pension with us. Your other investments may have different tax rules, so please check with your provider for details.
Your investment earnings are tax-free and you could pay less tax
A Retirement Income Allocated Pension offers tax benefits, which means you might pay less tax than you would if you chose another type of investment. There are two ways you can benefit:
- Investment earnings in your pension account are tax-exempt
- If you’re 60 or over, your regular income payments and lump-sum payments from your pension are tax-free
Here’s a summary of the tax rules that apply to your Retirement Income Allocated Pension account.
Different parts of your pension are taxed differently
Your Retirement Income Allocated Pension account may include two different parts or ‘components’. Each part is taxed differently, depending on where the funds come from. You might have:
- A tax-free component - the tax-free part of your super benefit that was transferred to your pension account. You do not pay tax on this amount. For example, it would include personal contributions made to your super, that you didn’t claim as a tax deduction. If you transferred from West State Super or Gold State Super, it would also include any part of your benefit that was taxed at 49% because your balance was above the untaxed plan cap.
- A taxable component - the taxable part of your super benefit that was transferred to your pension account. You may pay tax on this part of your pension when you access it. For example, it would include employer and salary sacrifice contributions.
To find out more about the tax components of your pension account, please call your Member Services Centre on 13 43 72.
How tax applies to your regular income and lump-sum payments
Here’s a summary of how tax applies to your regular income payments and any lump-sum payments from your Retirement Income Allocated Pension.
Component of your pension account
Lump-sum payments tax withheld rate (including 2% Medicare Levy)
Income stream payments tax withheld rate (plus 2% Medicare Levy)
Taxable component – taxed element
Taxed at your marginal tax rate, with no tax offset1
Commonwealth preservation age - 59
For payments up to the low rate cap of $195,0002 - 0%
For payments above the low rate cap - 17%
Taxed at your marginal tax rate, less a 15% tax offset on the taxable component
Under Commonwealth preservation age
Commonwealth preservation age - 59
You won’t pay tax on your Retirement Income if you’re aged 60 or over
If you’re 60 or over, your regular income stream payments or lump-sum payments from your Retirement Income account will be completely tax-free. You won’t need to include these payments in your personal income tax return.
Examples of how regular income payments are taxed
If your pension account has a tax-free and a taxable component, your regular income payments will include an amount drawn from each component, based on the total value of your pension.
Here are two examples of how income payments are taxed according to your age and the components of your account.
Meet Fiona, aged over 60
- Fiona is 63 and transfers $250,000 to a Retirement Income Allocated Pension
- Her $250,000 is made up of a $210,000 taxable component and a $40,000 tax-free component
- She chooses monthly income payments of $1,600
Her monthly pension will include the following components:
40,000/250,000 x 1,600 = Tax-free: $256
210,000/250,000 x 1,600 = Taxable-taxed: $1,344
Tax-free + Taxable-taxed = $1,600
- Fiona is over 60, so the total amount of her pension payment will be tax-free.
Meet Frank, aged under 60
- Frank is 57 and transfers $350,000 to a Retirement Income Allocated Pension
- His $350,000 is made up of a $310,000 taxable component and a $40,000 tax-free component
- He chooses monthly income payments of $1,400
His monthly pension will include the following components:
40,000/350,000 x 1,400 = Tax-free: $160
310,000/350,000 x 1,400 = Taxable-taxed: $1,240
Tax-free + Taxable-taxed = $1,400
Frank is 57, so he will need to pay tax on the taxable-taxed component at his marginal tax rate (plus 2% Medicare Levy). A 15% tax offset on the taxable component is available to reduce the amount of tax he needs to pay. He will not pay tax on the tax-free component.
1 Tax offset is available for a disability super benefit.
2 For the 2016/17 financial year, indexed annually in line with Average Weekly Ordinary Time Earnings in increments of $5,000 rounded down.
- Call us on 13 43 72
Thank you for printing this page. Remember to come back to gesb.wa.gov.au for the latest information as our content is updated regularly. This information is correct as at 24 May 2017.