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Q. So the lump sum withdrawal is tax-free and the ECPI is irrelevant in that case?

A. Yes, that's correct. If a member of an SMSF chooses to withdraw their benefits as a lump sum, any capital gains made by the SMSF on assets held within the fund will generally be tax-free. In this case, the ECPI rules would not apply, as the lump sum withdrawal is not considered to be an income stream payment.

It's worth noting that there are some circumstances where a lump sum withdrawal may be subject to tax, such as if the member has exceeded their transfer balance cap or if they have received certain types of contributions. However, in general, a lump sum withdrawal from an SMSF is typically tax-free for members who have reached their preservation age. It's always important to seek professional financial advice to understand your personal circumstances and any potential tax implications.

Andy The Bitcoin Adviser 2y ago

The issue may well be bitcoin price appreciation by the time you retire could well mean you’re multiples higher than the transfer balance cap, what ever that may be at that point in time.

So in todays money your first $1.9m will be tax free but probably 15% on anything above that and maybe 30% on anything above $3m maybe.

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Discussion

David Pinkerton 2y ago

Correct me if I've got this wrong but when a person chooses to withdraw their superannuation savings as a lump sum after reaching their preservation age, the amount they withdraw is not considered a transfer to a retirement income stream and therefore does not count towards their TBA or TBC.

Andy The Bitcoin Adviser 2y ago

you might be right but it’s also a little ambiguous.

"Yes, there are caps on the tax-free amount you can withdraw from your superannuation account after age 60 as a lump sum.

The tax-free amount you can withdraw from your superannuation account as a lump sum is determined by the components of your superannuation balance. These components are:

Taxable component: This includes any investment earnings and employer contributions that have not been taxed.

Tax-free component: This includes any after-tax contributions you have made to your superannuation account.

If you are aged 60 or over, any lump sum withdrawals you make from your superannuation account are generally tax-free, regardless of the amount withdrawn. However, there are caps on the tax-free amount of your superannuation benefit, which are determined by the transfer balance cap (TBC) and the total amount of tax-free and taxable components of your superannuation account.

As of 1 July 2021, the transfer balance cap is $1.7 million. This means that the maximum tax-free amount you can withdraw as a lump sum is equal to the balance of your tax-free component, or the remaining portion of your TBC if your tax-free component is less than your TBC.

It is important to note that these caps can change over time, so it is recommended that you regularly review your superannuation account and seek professional financial advice to ensure you stay within the limits.”

Andy The Bitcoin Adviser 2y ago

And of course they are significantly prone to moving the goal posts!