In Australia, super is taxed. However, the government offers tax concessions on super contributions to encourage people to retire with more in their super savings.
Tax may be payable on your super at these stages:
- making a contribution
- investment earnings (the accumulation phase)
- making a withdrawal
- death benefit payments.
How are your super contributions taxed?
You can make before-tax super contributions and after-tax super contributions. Each option has their own tax implications.
Super contributions from after-tax income aren’t taxed in the fund, however earnings on these contributions whilst in your fund are subject to tax of up to 15%.
Before-tax super contributions and tax
Generally, if you earn less than $250,000 per year, before-tax super contributions are taxed at 15%. This tax rate generally applies up to $27,500 of before-tax super contributions each financial year. This is known as the concessional contributions cap.
Any concessional contributions over $27,500 will be included in your assessable income and taxed at your marginal rate at the end of the financial year (less the 15% you’ve already paid). For more information on exceeding the concessional contribution cap, visit the ATO (Australian Taxation Office).
Earn under $37,000 per year?
If you earn under $37,000 per year, the government may refund any tax you’ve paid on contributions (up to $500) into your super under the Low Income Superannuation Tax Offset.
Earn over $250,000 per year?
You’ll generally pay an extra 15% tax on some or all your before-tax contributions if your Division 293 income and concessional contributions are more than $250,000 a year. This is known as Division 293 tax.
The ATO will let you know if you need to pay this tax after you do your tax return each year.
Are you a Defined Benefit Division member?
Your before-tax contributions include a notional taxed contributions (NTC) amount.
The NTC is representative of your employer’s contributions in respect to your defined benefit interest and used to determine your concessional contributions. We calculate your NTC using a government-defined formula (this isn’t the same as the DBD formula).
As a result of the factors which make up the formula, NTC amounts are generally lower than your actual employer contributions and any default member contributions you make, so you may be able to contribute more without going over the $27,500 cap.
The NTC does not include after-tax contributions you have claimed a tax deduction for.
NTC amounts vary depending on your employer contribution rate. You can check your cap amount in your online account or download the fact sheet related to your membership or talk to an adviser for more details.
Super contributions from after-tax income (that haven’t been claimed as a tax deduction) are not taxed in your fund, however earnings on these contributions whilst in your fund are subject to tax of up to 15%.
Subject to your total super balance, you can generally contribute $110,000 a year (or up to $330,000 over three years if you’re eligible under the bring-forward arrangement) in after-tax contributions without paying any extra tax.
After-tax contributions over these caps can be taxed at up to 47%, but there are things you can do if you go over your cap. See more about contributions caps.
What tax do you pay on super investment earnings?
When is tax applied?
Your super investment earnings are usually taxed at 15% for accumulation accounts ((as you make contributions to your super fund throughout your working life) and transition to retirement pension accounts (until you turn age 65 or you notify us that you have met another relevant condition of release).
The tax is deducted before your earnings are allocated to your account.
When is tax not applied?
Investment earnings made in the retirement phase, including capital gains, will not attract tax.
Generally, no tax applies to investment earnings in Flexi Pension accounts (noting different rules will apply to TTR Flexi Pension accounts).
Tax on death benefit payments
If you have remaining superannuation when you die, tax may apply to the death benefit depending on who it's paid to.
The amount of tax payable on death benefit payments will depend on:
- whether or not the payment is paid to your beneficiary as a lump sum or an income stream
- your age when you die, and the age of your beneficiary (in relation to income streams)
- whether or not your beneficiary was your dependant under taxation law
- whether the super is taxable or tax free, and whether or not your super fund already paid tax on the taxable component.
No tax will be payable on the tax-free component of a super death benefit regardless of whether the benefit is paid out as an income stream or lump sum.
To find out more about how tax would apply to your super in the instance of your death, (and how this would impact your beneficiary), see Super death benefits on the ATO website.
Tax on superannuation withdrawals
If you’re aged 60 or over, you can usually withdraw your super as a lump sum tax-free.
For others, tax may apply depending on your circumstance:
- If you withdraw a lump sum before you turn 60, you may pay tax on any taxable component of your super.
- If you’re under your preservation age, you will be taxed on the taxable component at your marginal tax rate or 22%, whichever is lower.
- If you’re between your preservation age and age 60, you can receive an amount up to the low-rate cap ($235,000 for the 2023-2024 financial year) and the balance of your taxable component will be taxed at your marginal tax rate or 17%, whichever is lower. Visit the ATO for information about tax on super benefits.
- If you’re claiming the Departing Australia Superannuation Payment (DASP), tax will apply on the taxable component between 35% and 65% if you’re a working holidaymaker.
- Tax may apply to certain retirement income streams, so check the relevant product disclosure statement for the details.
Before you withdraw any benefits or make a substantial contribution, we recommend you obtain advice from a tax specialist. We also recommend talking to our team of experienced advisers.
Our team of experienced advisers are committed to putting you first.
You can make an appointment with an adviser over the phone, video call, or in person at a member centre all around the country.