New taxation arrangements for terminally ill members

The Australian Taxation Office (ATO) has introduced new taxation arrangements for members who are terminally ill. The new arrangements allow the ATO to vary the rate of withholding taxation for certain terminally ill recipients of lump sum superannuation member benefits.

Members who are exiting their employment by any means because they are terminally ill may be eligible for this taxation concession. In order to be considered for the taxation concession, members should include medical documents which show that they meet the ATO definition of terminally ill when forwarding their application for superannuation benefits, The ATO definition is:

“a payee will be taken to be terminally ill if it is certified by two medical practitioners (at least one of these a specialist) that they are suffering from an illness which in the normal course would result in death within a period of 12 months.”

We will determine whether the member meets the ATO definition, and if so, will ensure that  there is no tax deducted from any lump sum entitlement.

This does not alter the PSS provisions for members who are suffering from a terminal medical condition to be eligible to choose the terminal lump sum option on the issue of an invalidity retirement certificate. The PSS definition of terminal medical condition is:

A condition(s) suffered by an affected person that has been certified by two or more medical practitioners, at least one of whom is not treating the affected person, who have experience in the condition(s), as being of either a terminal nature or of such severity that within two years of the date of their certificate the affected person would need assistance with personal or nursing care on a daily basis.

This means that terminally ill PSS member may be entitled to choose the option of a terminal lump sum payment, but may not be eligible for the ATO terminally ill tax free lump sum.

If you have any questions about this matter, please email us at:

invalidity.assessment@pss.gov.au or

invalidity.assessment@css.gov.au or

call us on 1300 000 377 (PSS) or 1300 000 277 (CSS)