Releasing Super and your Tax obligation
If you’re aged under 60, the amount released under compassionate grounds will be taxed between 17% and 22%.
The lump-sum paid will usually be made up of taxable and non-taxable components. However, if you’re over 60, the early super funds you receive will be tax-free. Any early super payment you receive will usually count towards your taxable income in the year they are received. This can also affect your eligibility for government welfare payments.
Example
Greta is 48 years old and applies to withdraw $40,000 of her super early on compassionate grounds. The ATO approves her application and the $40,000 payment she receives from her Super Fund consists of a taxable component of $30,000 and a non-taxable component of $10,000.
Greta must include the $30,000 taxable component in her taxable income on her tax return for that financial year. She will be taxed either at her marginal rate or 22%, whichever is lower.
Greta will not pay any tax on the $10,000 non-taxable component.
Summary
Any payments you receive before reaching your preservation age will generally not be tax free.
Depending on your age payments have a taxable and non-taxable component. Contact your Super Fund directly.
You will need to include the taxable lump-sum paid in your Tax Return in a separate item than your wages and salaries, so you are not taxed more than 22%.
Your Super Fund will send you a Payment Summary that will include all the details to report on your tax return. Please speak to your accountant.
