tax free component
Definition
The tax free component of a superannuation benefit is that part of the benefit that is non assessable and non exempt income. Determining the tax free component is a two step process.
For a lump sum benefit you express the sum of the crystallised segment and the contributions segment as a percentage of the total value of the interest at the time of payment. This percentage is then used to determine the tax free amount of the lump sum payment. The percentage is recalculated at the time of each subsequent payment.
For a pension you express the sum of the crystallised segment and the contributions segment as a percentage of the total value of the pension on commencement or at the time of crystallisation. This percentage is then used to determine the tax free component of each subsequent pension payment or commutation.
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