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.
Related links
Last updated: 29 Jan 2018
