Super and tax

Super is a concessionally taxed investment, meaning you pay less to the tax-man by investing in super, than if you were to invest in other types of investments.

Some contributions (such as employer and salary sacrifice contributions) incur 15% tax on entry, called Contributions tax.  Others (such as personal contributions you make from after-tax monies) do not any tax on entry.  Then, any earnings your super fund generates are taxed at a maximum of 15%, opposed to earnings in other investments which are taxed at your marginal tax rate. 

See Tax on Super.

Accessing your super

When it comes time to access your super (providing you have met a condition to access your super), you have the option of drawing a lump sum or converting all or some to a pension.  If you access your super after age 60, it will generally be tax-free.  (Tax may be payable if your super is in an Untaxed fund).  

If you are accessing your super prior to age 60, you will most likely incur tax.   Depending on the source of the contribution, super used to be sectioned into numerous categories called components which prescribed how the money would be taxed upon accessing it.    Since 1 July 2007, these numerous components were replaced by two components – a taxable component and an exempt component.


“Components” prior to 30 June 2007 New components from 1 July 2007 Tax applicable
Pre July 1983 Exempt component NIL
Concessional
Undeducted contributions
Post June 1994 Invalidity
Capital gains tax exempt
Post June 1983  

If over age 60, NIL

If under age 60, see below
Excessive Abolished N/A


Taxable component under age 60

Age Tax treatment since 1 July 2007
Under 55 20%
Age 55 – 59

Up to threshold ($129,751) – zero

Over threshold – 15%


Man on boardwalk
Hot topic: 2007 changes

In the 2006 Federal Budget the Government announced significant changes designed to simplify and streamline superannuation.  Some changes took effect in 2006-07, but most took effect from 1 July 2007.   Key changes in relation to retirement included:

  • No tax after age 60 from a taxed superannation fund, regardless of whether you take your benefit as a lump sum or convert it to an income stream
  • Reasonable Benefit Limits (RBLs) abolished so there’s no longer any penalties for accumulating large amounts is super
  • You can stay in super as long as you like, there’s no longer a requirement to cash out of super after 65 if you’re no longer working (this took effect 10 May 2006)
  • Tax component changes. If you are able to and choose to access your super prior to age 60, there may be a tax liability. But now there are only 2 tax components: a Tax free component and a Taxable component.
  • Pension minimums are calculated differently and there’s no longer a maximum. The minimum amount you need to take from your pension product is generally now calculated as a percentage of your account balanced based on age.  And for most pension products now, there’s no maximum annual payment limit. 
  • Death benefits as pensions can only be paid to tax dependants.  
  • Centrelink changes to pension assets test taper rate.  From 20 September 2007, the rate will halve, meaning people previously unable to access the Age Pension may in fact be able to.
Some changes also occurred to the superannuation system prior to retirement such as new contribution limits in super, visit our Superannuation Pages for more information on super in general.

So, talk to your financial planner - it may be worth topping up your super now.

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