The trustee of an SMSF will have PAYG obligations to withhold tax for superannuation benefit payments to members who are under 60 years old and the benefit is an income stream (pension) or a lump sum.

This also includes members under 60 years old and the death benefit is a pension which is a capped defined benefit income stream where the deceased was 60 years old or over when they died, and it also applies to trustees who are 60 years old or over and the benefit is a pension which is a capped defined benefit income stream.

“Capped defined benefit income streams include life expectancy and market-linked pensions which were payable before 1 July 2017 and reversionary income streams paid to beneficiaries,” the ATO said.

“If the member is receiving a capped defined benefit income stream, the member’s defined benefit income cap may need to be taken into consideration when working out the member’s withholding.

“You also have obligations to withhold tax from superannuation benefits you pay to a non-dependant in the event of another person’s death.

“You must provide a PAYG payment summary when you pay superannuation benefits to the trustee of a deceased estate, even though the amount of tax withheld is nil. This allows the trustee of the deceased estate to withhold the correct amount of tax from payments they make.”

If there are obligations to withhold tax, SMSFs will need to register for PAYG withholding and obtain a tax file number declaration (TFN) from the member, according to the ATO.

SMSFs then need to calculate the rate of withholding that applies in accordance with the tax table for superannuation income streams, pay withheld amounts to the ATO and issue a PAYG payment summary to the recipient of the benefit. They will then need to lodge a PAYG withholding payment summary statement by usually 14 August following the end of the financial year in which the payment was made.

Providing information to the recipient of the benefit  

SMSFs should also provide the recipient with the details of each income stream or lump-sum payment on a PAYG payment summary. The ATO noted this includes where the super lump sum is paid to a member who was under 60 years old, a non-dependant in the event of another person’s death and the trustee of a deceased estate. 

In terms of the super income stream, SMSFs pay the member up until they turn 60 years old and the capped defined benefit income stream payment for a member after they turn 60 years old.  

“The capped defined benefit income stream is a death benefit income stream where you pay a member who is 59 years old or younger and the deceased was aged 60 years old or over at the time of death,” the ATO reminded. “The payment summary will need to show that this is a death benefit (reversionary income stream),” it said.

“Each pension payment summary needs to include details of the payment, including the tax-free component, taxable component, tax offset (if applicable) and the tax withheld (if applicable).

“Payment summaries should be issued in the situations listed above even if no tax has been withheld.”

Withholding obligations for income streams

In terms of withholding obligations for income streams, the ATO noted SMSFs have obligations to withhold tax from income streams they pay to members who are under 60 years old.

Obligations also apply for those under 60 years old and the income stream is both a death benefit income stream and the deceased member was 60 years old or over when they died and had a capped defined benefit income stream; or those over 60 years old or over and the income stream is also a capped defined benefit income stream.

“You must provide your member with a PAYG payment summary by 14 July following the end of the financial year in which the payment was made,” the ATO explained.

“You must lodge a PAYG withholding payment summary statement with us by 14 August following the end of the financial year in which the payment was made.

“You must also provide this information even where you are paying an income stream and the rate of withholding is nil. This allows us to ensure the individual pays the correct rate of tax once all their pension income from all their funds is taken into consideration.”