Sally Sheltern, 54 years of age, commenced receiving a reversionary lifetime pension following the recent sudden death of her partner, Harry, 59 years of age, in July 2014. The pension payments were allocated into the following components; tax-free allocation of 30%, taxable (taxed) allocation of 50% and taxable (untaxed) allocation of 20%. For the 2015 year Sally received a total of $95,000 in pension payments from the reversionary income stream. Sally has a marginal tax of 32.5%. Ignoring the Medicare levy, the net tax payable by Sally on the pension payments will be:

Question

Quizplus · Accepted Answer

The net tax payable by Sally can be calculated by first determining the taxable portion of her pension payments. The tax-free allocation (30%) of her pension is not subject to tax, so this portion is excluded from the taxable income. The taxable (taxed) allocation (50%) and the taxable (untaxed) allocation (20%) are subject to tax. The total pension payment is $95,000, so the taxable portion is 70% of this (50% + 20%), which equals $66,500. The tax on the taxable (taxed) portion is calculated at Sally's marginal tax rate of 32.5%. However, the taxable (untaxed) portion may be subject to different tax treatment, including the potential for tax offsets or additional taxes, depending on specific tax laws and regulations. Without specific details on the tax treatment of the taxable (untaxed) portion, a precise calculation cannot be provided. However, given the options available and the information provided, the best estimate for Sally's net tax payable on the pension payments, considering her marginal tax rate and the taxable portions of her pension, aligns closest with option D) $17,480, assuming standard tax treatment of the taxable portions and the application of her marginal tax rate to the taxable (taxed) portion.

Sally Sheltern, 54 Years of Age, Commenced Receiving a Reversionary