Why am I seeing this?

Why is part of my tax-free pension showing as taxed?

When a Fund member who is over retirement age and has permanently retired receives a pension, no income tax applies. It might confuse some user then, to see that Mclowd sometimes allocates the payment to a taxed account. The payment, or part of it, might be allocated to Account 5-1230-03 Pensions Paid – Unrestricted Non Preserved/Taxable or 5-1230-05 Pensions Paid – Restricted Non Preserved/Taxable.

When contributions are made to your Superannuation Account, varying rules apply in regard to taxation and restrictions on withdrawal. You can read about taxation of superannuation at https://www.ato.gov.au/individuals/super/super-and-tax/.  You can read the rules relating to preservation and restrictions on withdrawals at https://www.ato.gov.au/Super/Self-managed-super-funds/Paying-benefits/Conditions-of-release/.

Your superannuation account balance is likely to be divided into various categories, with part of the balance being Taxed in the Fund and part Untaxed in the Fund. Parts of the balance may be Preserved and parts Restricted but Non-Preserved and Restricted Preserved.

When you commence a pension account, the balance in your pension account is likely to be unrestricted and non-preserved, and taxation does not apply to pension payments made to you. Nevertheless, any balance Taxed in the Fund will be subject to taxation under certain conditions, such as upon your death if it passes to a non-dependant heir. Tax-free withdrawals from your account reduce both the Taxed and the Untaxed portions of your account balance proportionally. That is, if 40% of your account un-taxed, and you are drawing a pension of $4000 per month, each pension withdrawal should reduce the untaxed balance by $1600 and the remaining $2400 should reduce the taxed balance.

By tracking withdrawals to correctly allocate between taxed and untaxed portions of your account balance, Mclowd ensures that when any tax becomes payable, it applies correctly to only the taxed portion of your account.

The year-end rollover process provides an opportunity to ensure that although payments were made from the portion of your account that is Taxed in the Fund, and are showing in account 5-1230-02 or 5-1230-05, no tax is levied on the actual pension payments made to you during the year.

 

 

about the author:

Lorraine Cobcroft

With a background in accounting and financial management, followed by two decades writing software documentation, Lorraine joined the Mclowd team in mid-2016 and is enjoying working with a dynamic team to enhance an innovative product that has the potential to revolutionize the way Australians manage their retirement funding.
Lorraine is also an accomplished business writer, ghost-writer, novelist and short-story writer and poet.

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