Question

I’m retired and under 60 and I’m earning income from rent, dividends, share trades etc., and also drawing a Super Pension. How is my tax calculated?

• My income outside super = $35,000
• My income from pension = $40,000
• Total income = $75,000

Answer

If you’re under 60 and using a transition to retirement (TTR) income stream such as TelstraSuper RetireAccess to draw an income - your income from the TTR may be subject to tax.

After age 60 any benefits paid from super are tax-free. Another point to note is if you’re drawing an income stream before age 60 any investment returns your account earns are subject to 15% tax. After age 60 investment returns are also tax-free.

Super and tax before age 60

Your super may be made up of two components – tax-free and taxable – and your latest super statement gives you the breakdown on these components. If you have a taxable component this may be taxed if you withdraw your super before age 60. This will also depend on whether you are taking your money out as a lump sum or as a pension (such as through a TTR).

A super lump sum is taxed differently from a benefit that you convert into a super pension (such as a TTR like TelstraSuper RetireAccess ). If you retire before the age of 60, you may receive a tax-free amount as part of your income stream, and you will also be eligible for a 15 per cent pension offset on the taxable component of your benefit. The pension offset could reduce your tax bill, potentially to zero.

So, in this example, if the $40,000 income from the pension was made up of 50% tax-free and 50% taxable components - $20,000 would be tax-free and $20,000 would be taxable. The taxable income would be added to the income being made outside super ($35,000 from rent, dividends and share trades).

This would then be taxed at your marginal tax rate less a tax offset equal to 15% of the taxable portion. In this example, the tax-offset would be $3,000 ($20,000 * 15%).

The tax in this example would be:

• Total taxable income: $35,000 (income outside super) + $20,000 (taxable income from income stream) = $55,000
• Total tax free income from income stream: $20,000
• Tax offset: $3,000
• Tax payable* = $9,422 - $3,000 = $6,422

This is a very simplified example as there are many things that may play a role in how much tax a person pays. It’s a good idea to seek financial advice on how to best structure your assets to maximise your income.

We can help you

TelstraSuper Financial Planning has a team of Advisers who can sit down and discuss the best ways to draw on your super and reach your retirement goals. They can also work out what other benefits - such as the Age Pension - you may be entitled to.

To speak to a TelstraSuper Financial Planning Adviser please call 1300 033 166 or you can request a call back online.

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*based on 2016/17 income tax rates