Flood Levy & Super Benefits

The Flood Levy applies only to the 2011/12 financial year and will be in addition to the Medicare levies.  The levy is really the temporary flood and cyclone reconstruction levy.

The levy applies to each individual taxpayer who has a taxable income of $50,001 or more.  For taxable incomes greater than $50,001 but less than $100,001 the rate of the levy is 50c per $100 of taxable income above $50,001.

For taxable incomes greater than $100,001 the levy will be $250 plus $1 for each $100 of taxable income over $100,000.

An individual who was directly affected by the flood and cyclones of earlier this year, will be exempted from the levy if they lodge a levy exemption form.

To the extent super benefits – whether lump sum or pension – are counted as taxable income, the levy may apply.

PAYG rates in respect of super benefits will be affected by the Flood Levy (like the basic medicare levy).  The final liability to the flood levy will be determined once the individual’s tax return is lodged.

Summary – lump sum benefit paid from an SMSF

Payment made before preservation age

• Tax free portion -  No PAYG and no Flood Levy
• Taxable portion  - PAYG at 21.5% plus Flood Levy

Payment made between preservation age and age 60

• Tax free portion – No PAYG and no Flood Levy
• Taxable portion up to low rate cap  - No PAYG but Flood Levy
• Taxable portion above low rate cap -  PAYG at 16.5% plus Flood Levy

Payment made on or after age 60

• Tax free portion – No PAYG and no Flood Levy
• Taxable portion – No PAYG and no Flood Levy

Summary – pension benefits paid from an SMSF

Pension payments made before preservation age

• Tax free portion -  No PAYG and no Flood Levy
• Taxable portion  - PAYG at normal periodic rates plus Flood Levy

Pension payments made between preservation age and age 60

• Tax free portion – No PAYG and no Flood Levy
• Taxable portion  -  PAYG at normal periodic rates (with allowance for 15% rebate) plus Flood Levy

Pension payments made on or after age 60

• Tax free portion – No PAYG and no Flood Levy
• Taxable portion – No PAYG and no Flood Levy

The main points are:

• Lump sum super benefits which are not taxed due to the low rate cap (which is $165,000 for 2011/12) will still give rise to a Flood Levy liability
• Pension and lump sum super benefits received after age 60 are not subject to the Flood Levy

Example  - Lump sum super benefit received in the period from preservation age but before age 60.

Heather is a member of an SMSF.  Her lump sum super benefit is $200,000 of which $20,000 constitutes a tax free component.  The balance ($180,000) will be taxable component  The benefit is paid during the 2011/12 financial year.

The PAYG to be withheld by the trustee from the lump sum super benefit is calculated below.

To determine the PAYG amount to be withheld by the trustee from the superannuation lump sum, it must first be converted to an equivalent weekly amount and the flood levy calculation formula applied.  This amount is then rounded to the nearest whole dollar amount and then annualised.

The equivalent weekly amount will be $3,461.99  ($180,000 divided by 52 and rounded up to 99 cents)

The flood formula is:
$3,461.99 x .01  less  14.4231
Which gives $20 (rounded to nearest whole dollar amount).
The annualised amount of the levy will be $1040  ($20 x 52).

The total PAYG to be withheld will be $3,515 (ie 16.5% of $15,000 and $1,040).