Tax & super

How is super taxed?

Your super money can be taxed at three stages: when it goes into the fund (contributions), while it is in the fund (investment earnings) and when it leaves the fund (super benefits).

Understanding how your super is taxed can help you benefit from tax concessions and avoid costly mistakes.

Tax on contributions

The amount of tax you'll pay on your super contributions depends on the type of contribution and your personal circumstances.

Employer and salary sacrificed contributions

Also known as concessional contributions, employer and salary sacrificed super contributions are taxed at 15% when they are received by your super fund.

Smart tip

Make sure you have given your tax file number to your super fund or you could be paying too much tax.

Low income earners

If you earn $37,000 or less the tax you have paid on your super contributions, up to $500, will be automatically added back into your super account through the low income super contribution. From 1 July 2017 this will be replaced by the Low income super tax offset contribution (LISTO).

High income earners

If your combined income and super contributions exceed $300,000 you will pay Division 293 tax. This is an additional 15% tax on the lessor of your concessional contributions or the amount in excess of the Division 293 income threshold. This threshold will reduce to $250,000 on 1 July 2017.

Personal contributions

After-tax personal contributions and those received under the government's co-contribution scheme are not taxed when entering your super fund.

Consolidating super

In most cases, when money is transferred from one super fund to another when consolidating or switching funds, no additional tax is payable. Tax may only be payable if you were moving from an untaxed fund, such as an older style government fund.

There are limits on how much you can contribute to super and there are penalties for going over these limits. See contributing extra to super.

For more information about the changes to super from July 2017, see the super changes page on the ATO's website.

Tax on investment earnings

Income which is earned in the fund (investment earnings) is taxed at a maximum rate of 15%. Capital gains longer than 12 months within the fund will be taxed at 10%.

The amount of tax your fund pays can be reduced by tax deductions or tax credits. For example, a growth fund may only pay 7% tax because its dividend income entitles it to tax credits.

Tax on withdrawals

When you become eligible to access your super you can take a super income stream to provide you with a regular income, or you can withdraw all or part of your benefit as a lump sum.

Super income streams

The tax treatment of super income streams is covered in detail in retirement income and tax. If you are aged 60 or over your income will usually be tax-free. If you are under age 60 you may pay tax on your super pension.

Lump sum withdrawals

If you are aged 60 or over any withdrawals from a taxed super fund are tax-free. Different rates may apply to untaxed funds, such as government super funds.

Smart tip

Taking all your super out as a lump sum when you retire may not be a good idea. You should speak to a financial adviser to find out the best way to take your super.

If you access your super before age 60 you may pay tax on withdrawals. You can withdraw up to the low rate threshold, currently $195,000, tax-free. This is a lifetime limit and is indexed annually. The threshold does not include the tax-free portion of your super account, which will be returned to you tax-free. Any amounts over the low rate threshold will be taxed at 17% (including Medicare Levy) or your marginal tax rate, whichever is lower.

If you are withdrawing a lump sum from super and are younger than your preservation age, the lump sum will be taxed at 22% (including Medicare Levy) or your marginal tax rate, whichever is lower. There are limited circumstances under which you can access super before your preservation age.

Find out your preservation age.

Super and pension age calculator

 

While you can access a lump sum this may not necessarily be the best strategy for you. We recommend you seek financial advice before making a decision to withdraw funds from your super.

For detailed information on how other lump sum benefits are taxed, see the ATO's web pages on lump sum withdrawals and death benefits.

Tax and super is a complex area and we recommend that you seek help from a tax professional or financial adviser.


Related links


Last updated: 27 Mar 2017