Q10A - Problem Set 10 Solutions 1 Bill a retiree over 60...

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Problem Set 10 – Solutions 1. 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 payable? 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. As Bill is over 60, no income tax is payable. Age % account balance (2011/12) 55-64 3 65-74 3.75 75-79 4.5 80-84 5.25 85-89 6.75 90-94 8.25 95 or more 10.5 2. 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. 3. 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).
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Q10A - Problem Set 10 Solutions 1 Bill a retiree over 60...

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