Most people quickly come to realise that when making a TPD claim, the chances are, you will have to pay tax on your withdrawal unless you are aged 60 and over. We aim to answer some of the burning questions in relation to tax on TPD claims.
Is a TPD payout considered taxable income?
A TPD payout is not considered taxable income, however if you withdraw part or all of your TPD payout from your super fund as a lump sum, you’ll need to pay tax. The calculation is different for everyone, and if you have multiple super funds, the calculation may be different for each fund you make a withdrawal from.
In summary, and under the current ATO rules as of 24 December 2019:
- There’s no tax payable if you are aged 60 or over.
- If you’re under 60, the amount of tax you’ll pay depends on your age and your “eligible
service date” (this is usually the date you became a member of your superannuation fund).
- If you haven’t reached your preservation age, then a portion of the withdrawal amount will be tax free, and the taxable portion will be taxed at 22%. If you have reached your preservation age (but are not yet aged 60), you can withdraw up to
- $210,000 tax free.
- If you withdraw more than this amount, a portion of the further withdrawal amount will be tax free, and the taxable portion will be taxed at 22%.
1. Withdraw full amount out including your Super balance and close your account down.
2. Partial withdrawal to cover bills, and legal fees and leave the rest in your super account.
3. Rollover the monies into a Superannuation offering a disability/income stream with a
Superannuation funds have a complex formula when it comes to tax on the withdrawal of your TPD benefit and account balance.
WKB TPD Lawyers has partnerships with specialised Financial Planners who will provide you with a free consultation, to discuss your tax, Centrelink and/or NDIS options, when withdrawing your TPD lump sum benefit and account balance.
See the Director, Warren Bennett, of WKB talk about why its important to seek financial advice via this link https://wkblawyers.com.au/faqs-and-tips/