Your Question Answered: Creating Tax Free income

Back in November 2020, I was talking here about AMP and the offer from the American company “Hi Katherine,

Please help me understand this. Say I have reached preservation age, and I convert my super accumulation account into an account-based pension, which I believe is tax free. I choose 4% withdrawal rate and I receive $40K.

I also have some personal share investment which pays me $15K a year including franking credits. Since $15K is within the personal income tax free threshold, does that mean I pay ZERO income tax?

Pretty good to have $55K income and pay no income tax. Thank you.”

I have reached preservation age – this is crucial to understand. If you don’t know what preservation age is, read this article: “Superannuation preservation age and

I convert my super accumulation account into an account-based pension, which I believe is tax free – just as mentioned above, this is a good example when you could start an account-based pension, but not tax-free. In order for income to be paid to you tax-free, you need to be over the age of 60 and fully retired.

I choose 4% withdrawal rate and I receive $40K. – assuming you met all the conditions of release, it is correct the full $40,000 income payment is tax-free and is not included in any tax return.

I also have some personal share investment which pays me $15K a year including franking credits. This indicates to me a dividend received income of $10,500 with additional franking credits of $4,500.

Based on the above information, we have already established that income received from your account-based pension is not a taxable income, it is tax-free. Therefore, in this scenario, the only taxable income is $15,000 as a share dividend income.

If your personal tax rate is 0%, which clearly is the case in our scenario discussed above. Therefore, as you can see, the calculation is correct, the full income of $40,000 from the income stream and $15,000 of dividend income comes to you all tax-free.

VIDEO Mentioned:
“Superannuation preservation age and preservation
rules – your access to super explained”    • Superannuation preservation age and p...  

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