No tax on your Pension Income

The government’s initiatives to induce Australians to save using Super includes making the receipt of income from your pension Super tax free.

For example lets say your super is worth $400K at 55 and you are eligible to retire, you can convert your super to a pension [referred to a Transitional Retirement Income Stream (TRIS)] and begin taking a regular payment from your super like a wage. Any income received by the pension from this time is Tax Free.

This is one of the main reasons why people start to contribute more into Super as they approach retirement as they want to maximise this tax free Income during retirement.

To read more on TRIS pensions click here or Account Based Pensions click here

What if you go back to work after you begin receiving a pension

Lets say after retiring at 55 you decide to go back to work very soon after retirement and you continue to take a pension while at the same time are making further contributions to your super fund. In this case you will have two pension interests, a Accumulation Interest and a Pension Interest.

Accumulation Interest – will be subject to the <see tax rate %> SMSF tax rate.

Pension Interest – will be not be subject to tax in the SMSF.

Therefore you will still receive tax free income on your super money that is used to fund the pension, a calculation involving an actuarial certificate is made to determine what percentage of income is Tax Free and what percentage is taxable at 15% since now you have Pension Assets and Assets accumulated from your contributions while working.

Alternatively you can segregate your assets such that pensions assets are clearly separated to the non pension assets. For example maybe you have property which is a pensions asset all income from this could be Tax Free if segregated from other investments. For more on segregated assets click here.

Here’s what the ATO has to say <ATO-Link>.