Keeping up with your client’s SMSF lodgment obligations can be a challenging task. The ATO recently reminded trustees of one of those lodgment obligations; pay-as-you-go withholding (PAYGW) on some benefit payments. Where a member received a benefit payment during the year, the trustee may be required to withhold PAYG and remit this to the ATO. The member must also be issued with their PAYG payment summary within two weeks of the end of the financial year.

What are the PAYGW obligations for SMSFs

The trustee of an SMSF will be required to withhold tax for superannuation benefit payments if the member receiving the payment was:

• Under 60, who was taking their benefit in the form of an income stream (pension) or a lump sum;
• Aged 60 and over, and the benefit is a pension which is a capped defined benefit income stream; or
• Under 60, and the death benefit is a pension from a capped defined benefit income stream where the deceased passed away when they were 60 years old and over. 

For members under the age of 60, the taxable component of the pension payments received are subject to tax at the member’s marginal tax rate (MTR). However, a 15% tax offset on the taxable component of the payment(s) is available.

PAYGW on death benefit payments

When a death benefit gets paid to a dependent (i.e. SIS dependent and tax dependent) in the form of a lump sum, it is tax-free and therefore PAYGW won’t be applicable. Where the recipient of the death benefit is not a tax dependent, the trustee will be required to withhold tax on the payments at a maximum of 15% for the taxable-taxed component and a maximum of 30% for the taxable-untaxed component. No tax needs to be withheld on the tax-free component.

Our recent article Mitigating disputes over superannuation death benefits discussed the importance of estate planning. This also includes who the death benefit will be paid to and whether it can be structured to minimise any tax payable. Moreover, members who are eligible may want to consider a recontribution strategy to increase their tax-free balance.

If there is an obligation to withhold tax, the trustee will need to register for PAYGW and remit the amount to the ATO. The PAYG payment summary must also be provided to the member by 14 July and lodged with the ATO by 14 August.

Managing your client’s SMSF PAYGW can be time-consuming and troublesome. We can offer assistance with managing your client’s PAYGW and PAYG installment obligations. If you have any other questions about managing your client accounts, please speak with Mark Phillips or Alex Polorotoff on 1300 364 597 or via email at mark.phillips@interprac.com.au or alex.polorotoff@smsfengine.com.au.

Check out our SMSF Administration Options