$5,000 tax refund on TPD withdrawal

Some TPD claimants will now be entitled to a $5,000 refund at the end of the tax year, if they have no other taxable income (and don’t have any other tax payments/deductions) thanks to recent changes in marginal tax rates.

A common question we get asked: Can I claim my tax back on my tax return? The answer is (as usual) it depends!

The tax withheld on super TPD withdrawal is at a maximum rate of 22% (on the taxable portion of the withdrawal). If the person’s marginal tax rate is less than this, then yes, they will probably get a tax refund.

Some claimants may not have completed a tax return for many years. So, for the financial year they make the withdrawal they need to do a very simple tax return and can get a health refund.

If you want to know more details, caveats and the math behind this, read on…

Disclaimer: Please note that this is not financial advice, this article is not comprehensive and other circumstances may impact this information, please seek advice before acting on this information.

TAX REFUND CALCULATION

If someone has no other taxable income, then they haven’t used up any of their $18,200 tax free threshold, so they will receive a refund of up to $4,004 on this bracket ($18,200 x 22% = $4,004).

Since 1 July, the marginal tax rates have changed. Now the 2nd tax bracket (from $18,200 to $45,000) is taxed at 16% plus 2% Medicare Levy, totaling 18% – down from 21% last year. So the potential refund amount on the 2nd bracket is 4% (ie, the 22% that the superfund withheld, less the marginal tax rate of 18%).

Therefore, the maximum potential refund on the 2nd tax bracket is $1,072 [($45,000 – $18,200) x (22% – 18%)].

This giving a total potential maximum refund of $5,076.

WHAT IS TAXABLE INCOME? ARE CENTRELINK PAYMENTS TAXABLE?

If the TPD claimant is getting other income such as income protection or work cover, they probably will NOT get a refund. Though, the good news is the super/TPD withdrawal will not trigger additional income on their IP or work cover.

If the TPD claimant is receiving Centrelink, some Centrelink payments are taxable and some are not. Jobseeker IS a taxable payment. So even though someone won’t usually pay tax on Jobseeker due to the amount (max $20,059 pa), as the Jobseeker payment is taxable income, this uses up the person’s entire tax free threshold, so they will be unlikely to receive a tax refund on their super TPD withdrawal.

Whereas, the Disability Pension & family tax benefits (and some others) are NOT taxable income. If the TPD claimant is only receiving these tax-free payments and no other taxable income, they will likely be entitled to the full refund.

OTHER CONSIDERATIONS / TAX DEDUCTIONS

Some TPD claimants may be entitled to this refund, only to then lose it due to certain tax deductions, some examples of this include: Medicare levy surcharge, HECS/HELP repayments, Family Tax Benefit refunds, Child Care Rebate refund, Child Support Payments, etc.

When making a superannuation TPD withdrawal, the taxable portion of the withdrawal (after the TPD tax-free uplift is applied) is included with any other taxable income and can impact the payments referenced above.

Questions around these payments are things we talk to clients about every day. If you have any further questions on this please feel free to reach out to us by clicking the contact us button, or contacting us below, we’re hear to help.

Emailing: [email protected]

Calling: 1300 220 298