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.

How super contributions are taxed

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 to avoid paying more tax on your super.

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 tax offset (LISTO).

High income earners

If your combined income and super contributions exceed $250,000 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.

Personal contributions

After-tax personal contributions and those received under the government's co-contribution scheme are not taxed when they are put into 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 are moving from an untaxed fund, such as an older style public sector fund for government employees.

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

See the ATO website for more details on the changes to super from 1 July 2017.

How investment earnings are taxed

Income which is earned in the fund (investment earnings) is taxed at a maximum rate of 15%. Capital gains on assets held for 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 an average of 7% tax because its dividend income entitles it to tax credits.

How super withdrawals are taxed

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 on our retirement income and tax page. 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.

If you access your super before age 60 you may pay tax on withdrawals. You can withdraw up to the low rate threshold, currently $200,000, 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.

How death benefits are taxed

When a person dies, their super balance is usually paid to their nominated beneficiary. This is called a 'super death benefit'. Superannuation benefits are typically made up of two components: tax-free and taxable (which may come from a taxed or untaxed source).

The tax-free component includes:

  • After-tax contributions
  • Government co-contributions.

The taxable (taxed) component consists of:

  • Employer contributions
  • Salary sacrificed contributions
  • Personal contributions where a tax deduction was claimed.

The taxable (untaxed) component only applies to super from an untaxed source, such as a public sector defined benefit super fund for government employees.

Super death benefits tax

The amount of tax a beneficiary pays is determined by:

  • The super component
  • Whether they are a dependant for tax purposes
  • Whether the super is taken as a lump sum or an income stream (non-dependants can only receive a super death benefit as a lump sum).

Tax treatment for each super component of a death benefit

Benefit recipient Tax-free component Taxable (taxed) component Taxable (untaxed) component
Dependant (received as a lump sum) No tax payable No tax payable No tax payable
Dependant (received as an income stream) No tax payable
  • If deceased or beneficiary is 60 years or over: no tax payable
  • If both beneficiary and deceased are under 60 years old: marginal tax rate less 15% offset
  • If deceased or beneficiary is 60 years or over: marginal tax rate less 15% offset
  • If both beneficiary and deceased are under 60 years old: marginal tax rate
Non-dependant (received as a lump sum) No tax payable Lower of marginal tax rate (including Medicare) or 17% Lower of marginal tax rate (including Medicare) or 32%

Super withdrawal and re-contribution strategies

You may have heard about people using a withdrawal and re-contribution strategy with their super after they retire as a way of minimising any future tax payable by non-dependant beneficiaries after they die.

When you make withdrawals from super, the components of the withdrawal are in proportion to the components of your super fund balance. For example, if your fund balance is made up of 90% taxable component and 10% tax-free component, then any withdrawals will be received as 90% taxable component and 10% tax-free component. You cannot choose to withdraw from only one component of your super.

A withdrawal and re-contribution strategy involves withdrawing a lump sum from super and then re-contributing the money back as a tax-free non-concessional (after tax) contribution. This could result in a greater tax-free component within your super fund.

Things to consider before using a withdrawal and re-contribution strategy

While this may seem like a good idea, there are a few things to consider before you go ahead:

  • Any strategy that is designed solely to reduce tax payable could be seen as a tax avoidance measure by the Australian Tax Office (ATO)
  • There are restrictions on when you can withdraw your super and whether you can withdraw a lump sum or start a pension
  • If you are under age 60, tax may be payable on the lump sum withdrawn
  • Re-contributions are subject to standard contribution limits
  • If you are over age 65 you may have to satisfy a work test to contribute money into super
  • Withdrawals from and contributions to your super may affect your total super balance and your transfer balance cap.

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


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Last updated: 29 Jan 2018