Retirement income & tax

Tax and retirement income streams

The amount of tax you will pay on your retirement income stream depends on the type of income stream, when you started it and what it was purchased with.

We explain how different retirement income streams are taxed depending on whether they were bought with superannuation money.

Super income streams

Super income streams are also known as pensions and annuities. They can be account-based pensions with no set time period or annuities that are fixed for a specific period of time.

Superannuation benefits are made up of two components, taxable and tax-free.

The taxable component is made up of:

  • Employer contributions
  • Salary sacrificed contributions
  • Contributions by self-employed persons where a tax deduction was claimed

The tax-free component is made up of:

For people aged 60 and over

Benefits from a taxed super fund (i.e. most super funds) are tax-free.

For people aged 55 to 59

No tax is payable on the tax-free component of your income payment. The taxable component of your income payment will be added to your taxable income. It will be taxed at your marginal tax rate, less a tax offset equal to 15% of the taxable portion of the payment. Work out your marginal tax rate with our income tax calculator.

Income tax calculator

Benefits paid to people aged under 55

It is rare for people under age 55 to be able to access their super. Usually your super can only be accessed if you become permanently disabled. In this case, you will be taxed as if you are aged 55-59.

If you are accessing your super for reasons such as hardship, the rules are slightly different. The tax-free component of your income payment will be tax free. The taxable component of your income payment will be added to your taxable income and taxed at your marginal tax rates.

Members of government super funds

Some government super funds don't pay regular tax, and are known as 'untaxed funds'. If you are a member of an untaxed fund, you may be taxed when you take out your benefit. Ask your super fund for details.

Transition to retirement income streams

A transition to retirement income stream is a pension bought with super money while you are still working. You must have reached your preservation age. To find out your preservation age, see our super and pension age calculator.

You are restricted to withdrawing a maximum of 10% of the balance each financial year and you are not allowed to withdraw lump sums.

These restrictions do not affect the tax treatment of the money you take out. The tax is the same as retirement income streams purchased with super money (55-59 / 60+).

Income streams from defined benefit super funds

Defined benefit income streams usually come from an employer super fund or a government employee super scheme.

Calculating the tax-free portion of a defined benefit income stream is very complex. However, before you are eligible for your benefit, your fund will send you a statement which will set out exactly how much is taxable and how much is tax free.

Non-super income streams

An annuity is an income stream purchased with money outside the super system. It will pay you a fixed income for a defined period of time, regardless of how the markets are performing.

Income from annuities, less a deductible amount, will be taxed at your marginal tax rate. The deductible amount represents the amount of your original capital that is being returned to you with each pension payment.

Tax on retirement income streams can be a complex area and we recommend you seek help from a tax professional or financial adviser. For most people, income streams bought with super money will be tax free from age 60.


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Last updated: 28 Jul 2016