PAYG withholding obligations

If you are the trustee of a self-managed super fund (SMSF), you have pay as you go (PAYG) obligations to withhold tax for superannuation benefit payments you pay to members who are:

• under 60 years old and the benefit is an income stream (pension) or a lump sum
• under 60 years old and the death benefit is a pension which is a capped defined benefit income stream where the deceased was 60 years old or over when they died
• 60 years old or over and the benefit is a pension which is a capped defined benefit income stream.

Capped defined benefit income streams include life expectancy and market linked pensions which were payable before 1 July 2017 and reversionary income streams paid to beneficiaries.

If the member is receiving a capped defined benefit income stream, the member's defined benefit income cap may need to be taken into consideration when working out the member's withholding.

You also have obligations to withhold tax from superannuation benefits you pay to a non-dependant in the event of another person's death.

You must provide a PAYG payment summary when you pay superannuation benefits to the trustee of a deceased estate, even though the amount of tax withheld is nil. This allows the trustee of the deceased estate to withhold the correct amount of tax from payments they make.

Withholding obligations

If you have obligations to withhold tax, you need to:

• register for PAYG withholding
• obtain a tax file number declaration (TFN) from the member      
  • if they do not provide their TFN before the payment is made you must withhold tax at the top marginal rate (47% for residents or 45% for non-residents from 1 July 2017) from the taxable component
   
• calculate the rate of withholding that applies in accordance with Schedule 13 – Tax table for superannuation income streams
• pay withheld amounts to the ATO
• issue a PAYG payment summary to the recipient of the benefit      
  • PAYG payment summary – superannuation lump sum
  • PAYG payment summary – superannuation income stream, even if the amount you needed to withhold from the income stream was nil.
   
• lodge a PAYG withholding payment summary statement with us, usually by 14 August following the end of the financial year in which the payment was made, even if the amount you needed to withhold from the income stream was nil.

Provide information to the recipient of the benefit

You should provide the recipient with the details of each income stream or lump sum payment on a PAYG payment summary where the:

• super lump sum is paid to    
  • a member who was under 60 years old
  • a non-dependant in the event of another person's death
  • the trustee of a deceased estate.
   
• super income stream  
  • you pay the member up until they turn 60 years old
  • capped defined benefit income stream you pay a member after they turn 60 years old
  • capped defined benefit income stream is a death benefit income stream where the you pay a member who is 59 years old or younger and the deceased was aged 60 years old or over at the time of death. The payment summary will need to show that this is a death benefit (reversionary income stream).
   

Each pension payment summary needs to include details of the payment, including the:

• tax-free component
• taxable component
• tax offset (if applicable)
• tax withheld (if applicable).

Payment summaries should be issued in the situations listed above even if no tax has been withheld.

Find out about:

• When tax is not withheld

Withholding obligations – income streams

SMSFs have obligations to withhold tax from income streams they pay to members who are:

• under 60 years old
• under 60 years old and the income stream is both  
  • a death benefit income stream and the deceased member was 60 years old or over when they died
  • a capped defined benefit income stream
   
• 60 years old or over and the income stream is also a capped defined benefit income stream.

You must provide your member with a PAYG payment summary by 14 July following the end of the financial year in which the payment was made.

You must lodge a PAYG withholding payment summary statement with us by 14 August following the end of the financial year in which the payment was made.

You must provide this information even where you are paying an income stream and the rate of withholding is nil. This allows us to ensure the individual pays the correct rate of tax once all their pension income from all their funds is taken into consideration.

Lump Sum Payments

For lump sums you must provide the recipient with a PAYG payment summary – superannuation lump sum within 14 days of making the lump sum payment.

When is tax not withheld

Tax is not withheld if the member:

• is 60 years old or over and the benefit is from an income stream which is not a capped defined benefit income stream
• has died and the benefit is paid to a dependent beneficiary as a lump sum
• has died and the benefit is paid to a dependent beneficiary as an income stream which is not a capped defined benefit income stream and either the dependant or member were 60 years old or over
• has a terminal medical condition.

See also:

• PAYG withholding
• Taxation of super benefits
• PAYG withholding payment summary statement
• Withholding rates for super lump sums
• Withholding rates for super income streams

Self-managed super funds (SMSFs) may have PAYG withholding obligations when paying retirement income streams (pensions) to members.