You take as a lump sum from your super or self-managed super fund (SMSF) and you want to know the impact on your aged pension entitlement. A lump sum is a one off payment of money.
How the Australian Government Department of Human Services assesses a lump sum amount for the income test depends on its nature and what you do with it. Generally, they treat lump sum amounts as income from the date you are entitled to receive the money – some is exempt, some included as assessable.
When you withdraw/receive a lump sum and receive a Government payment of some sort, you need to tell the Govt within 14 days so they can assess it. Otherwise you may be overpaid and have to pay the money back. Even if the money is exempt from the income test, you have to advise us of any resulting change to your assets, if you use the lump sum to buy assets.
Some lump sums are exempt from the income test. These lump sums are unlikely to be repeated, cannot be reasonably predicted, and are not money paid to you for a service or profit.
Examples of exempt lump sums:
- a one-time gift
- an inheritance
- an irregular superannuation amount, such as commutation of a superannuation pension (lump withdrawal)
However, what you do with exempt lump sums may affect your payment under the income or asset test.
1. Any amount you spend on an exempt asset such as your home, mortgage, or medical equipment, will not change the value of your assets that we assess.
2. If you buy non-financial assets, such as artwork or a holiday home, we will assess your purchase as an asset and this may affect your rate of payment.
3. If you use the lump sum to increase your financial assets, for example, you put it in the bank, loan it, or use it to buy securities or investments, it will be assessed as a financial asset. A notional rate of income will be deemed.
o From 1 July 2015 the % used for deemed income depend if:
- you are single and receiving an income support payment, the first $48,600 of your financial investments is deemed to earn income at 1.75% per annum and any amount over that is deemed to earn income at 3.25% per annum
- you are a member of a couple and at least one of you receives a pension, the first $80,600 of you and your partner’s financial investments is deemed to earn income at 1.75% per annum and any amount over that is deemed to earn income at 3.25% per annum
o For more about deeming go HERE
4. If you deposit the lump sum with your superannuation fund, it will not be assessed as an asset if you are under age pension age and have not started drawing on the fund.
5. Gifting your lump sum may affect your payment. It is your right to give away part or all of your lump sum. However, gifts in excess of $10,000 per year or $30,000 in a 5 year period will be included in your deemed financial assets. If you put the funds into a trust, we will assess whether the income and assets are still yours or whether you have gifted them. Read more about gifting.
This is a summary based on information at the Department of Human Services.
SuperBenefit works with SMSF trustees to connect them with the advisors they need. A call is FREE. If you have any questions, why not give us a call – it’s FREE! No obligation. 0407 361 596, Paul.