Problem Set 10 – Solutions
Bill, a retiree over 60 has $1m of benefits in an allocated pension from a
taxed source after 20/09/07. What income must he take? What tax is
Based on 2011/12 figures, Bill must take a minimum salary of at least 3%
of $1m (given his age) [$30,000] as this is an account-based pension.
Bill is over 60, no income tax is payable.
% account balance
95 or more
Tina, a retiree aged 63 has $750,000 in an account based pension from
an untaxed superannuation source.
(i) What level of income must Tina take in order for it to qualify for
concessional tax after 01/07/07?
(i) The minimum amount is 3% of $750,000 or $22,500 in 2011/12.
(ii) What tax is there on a pension of $22,500?
(ii) See the “untaxed source” table. Given her age, and assuming this is
her only income, it is taxed at marginal rates with a 10% tax offset. The tax
is $2,475, and the tax offset (0.10×$22,500 = $2,250), so the tax payable
is $225 – with the low income tax offset ($1,500 for taxable incomes up to
$30,000) this would reduce to nil.
A retiree aged 60 has $520,000 in super from an untaxed source.
Compare the following strategies in the first year of pension income:
(i) Re-contribution strategy: The retiree takes a lump sum and pays lump
sum tax, then elects to receive $25,000 as a pension payment.
(i) The tax on a lump sum from an untaxed source at 15% is $78,000,
which leaves $442,000 after-tax. The individual is eligible to contribute the
full $442,000 as a non-concessional contribution back into super using the
averaging provisions (the entire balance is now a 100% tax free element).
At least 3% must be taken as an income stream ($13,260).