DEFINED BENEFIT

If you are a member of a defined benefit scheme with a considerable pension income it is best to seek advice.

The rules state that defined benefit pensions will have a value that counts towards the $1.6 million cap by multiplying the full value of the pensions by 16.

The amount used for the calculation is the gross pension including all tax components – tax free, taxable and untaxed amounts.

What this means is that anyone with a defined benefit pension of more than $100,000 will exceed the cap and payments will be taxed differently. See the Australian Tax Office website for examples.

(Currently the unfunded components of these pensions are taxed at your full marginal tax rate but you receive a 10% offset on this amount once you reach 60.)

For example, Frances is 62 and receives a capped defined benefit income of $160,000, exceeding the cap by $60,000. Under the new rules she will need to include half of that, or $30,000, in her assessable income.

For an untaxed-source capped defined benefit income stream, entitlement to the tax offset will be limited to the first $100,000 of your total capped defined benefit income stream.