When to use part D
Use this part where the payee is receiving a capped defined benefit income stream and both:
- is 60 years of age or over
- their income stream is made up of one or more of
- tax-free component or taxable component – taxed element
- taxable component – untaxed element.
Withholding steps
Work out the amount subject to withholding
Step 1: Convert all of the components of the whole income stream the payee received during this period to an annualised amount.
Then add together all the annualised components that make up the income stream. Use the table below to determine whether you go to step 2 or part C.
|
Income stream components |
Sum of components |
Next step |
||
|---|---|---|---|---|
|
Tax-free |
Taxed element |
Untaxed element |
||
|
Yes |
Yes |
Yes |
Equal to or greater than the Defined benefit income cap |
Go to step 2 |
|
Yes |
Yes |
Yes |
Less than the Defined benefit income cap |
Go to part C (untaxed component) |
Step 2: Add the annualised tax-free component and annualised taxed element. Subtract the cap from this amount. If this is less than the cap, go to step 5.
Step 3: Calculate the weekly, fortnightly or monthly equivalent of the amount at step 2. For example, if you pay the payee weekly, divide the excess by 52. If you pay fortnightly, divide the excess by 26. If you pay monthly, divide the excess by 12 (ignore cents in the result).
Step 4: Divide the amount calculated at step 3 by 2 (ignore cents in the result). The result is the amount subject to withholding.
Step 5: Calculate the weekly, fortnightly or monthly equivalent of the untaxed element and add this to the amount calculated at step 4 (if applicable).
Step 6: Use the appropriate PAYG withholding tax table to calculate the withholding amount relevant to the amount worked out in step 5. The tax table you use depends on the period the income stream covers – that is, weekly, fortnightly or monthly.
Calculate the tax offset applicable
Step 7: If the sum of the annualised tax-free component and the annualised taxed element is equal or greater than the cap, then the payee is not entitled to a tax offset.
If the sum of the annualised tax-free component and the annualised taxed element is less than the cap, the payee is entitled to a reduced tax offset. Subtract from the cap the sum of the tax-free component and the taxed element from step 2 and apply 10% to this amount. The result is the annual tax offset amount.
Calculate the weekly, fortnightly or monthly equivalent of this tax offset. For example, if you pay the payee weekly, divide the amount by 52. If you pay fortnightly, divide the amount by 26. If you pay monthly, divide the amount by 12 (ignore cents in the result).
Work out the amount to withhold
Step 8: Subtract the tax offset per payment (step 7) from the withholding amount (step 6).
Amount to withhold = withholding amount − tax offset
These examples use the PAYG withholding tax tables that apply from 1 July 2024.
Example: case D (i) – payee is over 60 years old and receives all elements of a capped defined benefit income stream
Nancy, 75, receives a capped defined benefit income stream for the financial year of $212,000 comprising of the annualised:
- taxable component – taxed element $120,000
- taxable component – untaxed element $62,000
- tax-free component $30,000.
Nancy is paid weekly and claims the tax-free threshold.
Work out the amount subject to withholding
Step 1: Add together all the annualised components.
$120,000 + $62,000 + $30,000 = $212,000
As the sum is over the $118,750 cap, proceed to step 2.
Step 2: Add together the tax-free component and taxed element. Subtract the $118,750 cap from this amount.
Sum of tax-free component and taxed element
$120,000 + $30,000 = $150,000
Amount in excess of cap
$150,000 − $118,750 = $31,250
Step 3: Calculate the weekly equivalent of the amount in excess of $118,750 calculated at step 2.
$31,250 ÷ 52 = $600 (ignore any cents)
Step 4: Divide the amount calculated at step 3 by 2.
$600÷ 2 = $300 (ignore any cents)
Step 5: Calculate the weekly equivalent of the untaxed element of the taxable component $1,192 ($62,000 ÷ 52) and add it to the amount calculated at step 4 ($300).
$1,192 + $300 = $1,492
Step 6: Using the Weekly tax table, the withholding amount relevant to the amount calculated in step 5 is $301.
Calculate the tax offset applicable
Step 7: Determine any entitlement to the tax offset. As the sum of Nancy's taxed element and tax-free component is over $118,750, she is no longer eligible for a tax offset for the untaxed element.
Work out the amount to withhold
Step 8: Amount to withhold = withholding amount (step 6) − tax offset (step 7)
= $301 − 0
Total amount to withhold is $301.
End of example
Example: case D (ii) – payee is over 60 years of age and receives all elements of a capped defined benefit income stream
Fred, 68, receives a capped defined benefit income stream (annualised) for the full financial year of $135,000 comprising:
- taxable component – taxed element $92,000
- taxable component – untaxed element $33,000
- tax-free component $10,000.
Fred is paid fortnightly and claims the tax-free threshold.
Work out the amount subject to withholding
Step 1: Add together all the components.
$92,000 + $33,000 + $10,000 = $135,000
As the sum is over the $118,750 cap, proceed to step 2.
Step 2: Add together the tax-free component and taxed element. Subtract the $118,750 cap from the result.
Sum of tax-free component and taxed element.
$10,000 + $92,000 = $102,000
Amount in excess of cap.
$102,000 − $118,750 = −$16,750
As $102,000 is less than $118,750 there is no excess amount.
Step 3 and Step 4: These steps are not necessary as no excess amount was calculated at step 2.
Step 5: Add the untaxed element of the taxable component $1,269 (ie. fortnightly equivalent of $33,000) to the amount calculated at step 4 (Nil).
$1,269 + Nil = $1,269
Step 6: Using the Fortnightly tax table, the withholding amount relevant to the amount calculated in step 5 is $112.
Calculate the tax offset applicable
Step 7: As Fred's tax-free component and taxed element is less than the $118,750 cap, he is entitled to a tax offset limited to the amount up to the cap.
Tax offset = ($118,750 − amount at step 2) × 10%
($118,750 − $102,000) × 10% = $1,675
The tax offset amount is capped at $1,675.
As Fred is being paid on a fortnightly basis divide the offset by 26.
$1,675 ÷ 26 = $64 (ignore any cents).
Work out the amount to withhold
Step 8: Amount to withhold = withholding amount (step 6) − tax offset (step 7)
= $112 − $64
Total amount to withhold is $48.
End of example
Example: case D (iii) – payee is over 60 years old and receives some elements of a capped defined benefit income stream
Bob, 70, receives a capped defined benefit income stream (annualised) for the full financial year of $210,000 comprising of:
- taxable component – taxed element $0
- taxable component – untaxed element $180,000
- tax-free component $30,000.
Bob is paid weekly and claims the tax-free threshold.
Work out the amount subject to withholding
Step 1: Add together all the components.
$0 + $180,000 + $30,000 = $210,000
As the sum is over the $118,750 cap, proceed to step 2.
Step 2: Add together the tax-free component and taxed element. Subtract the $118,750 cap from this amount.
$30,000 + $0 = $30,000
$30,000 − $118,750 = −$88,750
As $30,000 is less than the $118,750 cap, there is no excess amount.
Step 3 and Step 4: These steps are not necessary as no excess amount was calculated at step 2.
Step 5: Add the untaxed element of the taxable component $3,461 (that is, weekly equivalent of $180,000) to the amount calculated at step 4 (Nil).
$3,461 + Nil = $3,461
Step 6: Using the Weekly tax table, the withholding amount relevant to the amount calculated in step 5 is $992.
Calculate the tax offset applicable
Step 7: As Bob's tax-free component is less than the $118,750 cap, then he is entitled to a tax offset limited to the amount up to the cap.
Tax offset = ($118,750 − amount at step 2) × 10%
($118,750 − $30,000) × 10% = $8,875
The tax offset amount is capped at $8,875.
As Bob is paid weekly divide the offset by 52.
$8,875 ÷ 52 = $170 (ignore cents)
Work out the amount to withhold
Step 8: Amount to withhold = withholding amount (step 6) − tax offset (step 7)
= $992 − $170
Total amount to withhold is $822.
End of example