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This Guidance Note contains general information and examples. It may omit details that could be significant in your personal circumstances.

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receive more than $100,000 income from a capped defined benefit income stream in 2017-18, and

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are 60 years old or over (or a death benefit dependant and the deceased died at 60 years or over)

If the income is from a funded defined benefit income stream (the taxed element of the taxable component, and/or tax-free component), you will have to:

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include 50% of the excess over $100,000 in your assessable income, and

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pay tax at your marginal rate.

If the income is from an unfunded defined benefit income stream (an untaxed element of the taxable component) you will lose the 10% tax offset on the excess income over $100,000.

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start to receive a capped defined benefit income stream part-way through a financial year, or

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are already receiving a capped defined benefit income steam and you turn 60 years old part-way through the year

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62 years old and retired

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In 2017-18, receives $160,000 from a capped defined benefit income stream

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Paid from a funded defined benefit scheme (contains tax free and taxable components)

Frances will have to lodge a tax return and pay additional tax in 2017-18.

Frances includes $30,000 (50% of the excess over $100,000) in her tax return and it will be taxed at her marginal rate.

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59 years old and retired

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In 2017-18, receives $150,000 from a capped defined benefit income stream

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Paid from a funded defined benefit scheme (no untaxed element)

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Turns 60 years old on 12 September 2017

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Receives 80% of her benefits for 2017-18 ($120,000) after she turns 60

Her defined benefit income cap is reduced to reflect the period during 2017-18 in which her benefits were subject to concessional tax treatment (that is, from when she turned 60 years old).

Mary's defined benefit income cap for 2017-18 is calculated as the percentage of the full defined benefit income cap that represents the portion of the year that she was 60 years old. Mary was 60 years old for 80% of the year, so her defined benefit income cap will be $80,000 (80% of $100,000).

The defined benefit income that Mary receives after she turned 60 exceeds her reduced defined benefit income cap by $40,000. Therefore, she must include $20,000 in her tax return for 2017-18 (being 50% of the excess).

The rules for the portion of the income Mary receives before she turns 60 have not changed. Mary must include in her assessable income any taxable component of the $30,000 she receives before she turns 60, and is eligible for a 15% offset.

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68 years old and retired

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Receives $160,000 from a pension that is a capped defined benefit income stream in 2017-18

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Pension is partially from a taxed source and partially from an untaxed source

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Pension includes:

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$100,000 untaxed element

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$40,000 taxed element

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$20,000 tax-free component

The sum of the taxed element and tax-free components ($60,000) is counted towards the defined benefit income cap of $100,000 first. Khoi has $40,000 remaining of his cap ($100,000 minus $60,000).

The untaxed element is counted towards the cap next. $60,000 of the untaxed element exceeds the cap.

Khoi lodges his tax return and includes the amount of the untaxed element in his assessable income (this is exactly the same as what happens prior to 1 July 2017). However, Khoi will not be eligible for a 10% offset on the $60,000 that has exceeded the cap. He will only be eligible for a $4,000 tax offset (10% of $40,000).

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58 years old and retired

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In 2017-18, receives $130,000 from a life-expectancy pension, a capped defined benefit income stream

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Her spouse David dies on 12 September 2017 aged 65 years

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On 12 September 2017, she also begins receiving a reversionary defined benefit pension worth $75,000 per annum. She receives $60,000 in 2017-18 which is partially from a taxed source and partially untaxed (tax-free component $40,000 and untaxed element $20,000)

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Receives 80% of her life-expectancy pension for 2017-18 ($104,000) after starting to receive the reversionary pension

Ann's defined benefit income cap is reduced to reflect the portion of the year that she received the reversionary pension. Ann received the reversionary pension for 80% of 2017-18, so her cap is reduced to $80,000 (80% of $100,000).

Ann's defined benefit income cap is further reduced by the income she received from her life-expectancy pension while she was also receiving the reversionary pension ($104,000). The defined benefit income cap cannot be negative, so her cap for 2017-18 is nil.

The portion of Ann's reversionary pension from a taxed source ($40,000) exceeds her defined benefit income cap for the year by $40,000. She will need to include an additional $20,000 in her assessable income for 2017-18 (being 50% of the excess).

Ann's total reversionary pension ($60,000) exceeds her defined benefit income cap for the year by $60,000.

Ann would previously have been entitled to a $2,000 offset for the $20,000 untaxed element of the reversionary pension that she includes in her assessable income. However, she must reduce her tax offset by $6,000 (being 10% of the excess). The reduction is greater than the offset, so she is not entitled to an offset for the reversionary pension in 2017-18.

Ann will also include in her assessable income any taxed and untaxed elements relating to the $130,000 life-expectancy pension.