Tax on benefits paid due to permanent incapacity

Under Age 60

If you are under 60 and retire due to permanent incapacity, part of the normal taxable component of your benefit may be recalculated to form part of the tax-free component.

Generally, the tax-free component is increased to reflect the period where you could have expected to be gainfully employed if the disability had not occurred. This amount is calculated on the basis of your age, length of service and the amount of your benefit.

Your adjusted tax-free and taxable components will be taxed at the rates applicable to regular pension payments and lump-sum withdrawals.

For a concessional tax adjustment to apply, the following conditions must be satisfied:

  • the payment is made because you stopped being gainfully employed
  • you stopped being gainfully employed because you suffered from ill health (whether physical or mental)
  • your gainful employment stopped before your last retirement day – generally before age 65, and
  • two medical practitioners certify that it is unlikely that you can ever be gainfully employed in a capacity for which you are reasonably qualified by education, training or experience.

Age 60 or more

If you are aged 60 years or more, the benefit will be entirely tax-free, regardless of the above.