Tax on contributions
Concessional contributions
- SG contributions
- Salary sacrifice contributions.
- Personal contributions by self-employed persons for which they have claimed a tax deduction.
Concessional contributions have a limit of $27,500. Contributions within this limit are taxed at 15% unless you have a combined adjusted (including concessional contributions) taxable income of $300,000 pa or more. In this case concessional contributions are taxed at 30%. The government intends to reduce this limit to $250,000.
Carry forward unused concessional contributions
From 2019–20, carry forward rules allow you to make extra concessional contributions – above the general concessional contributions cap – without having to pay extra tax.
The carry forward arrangements involve accessing unused concessional cap amounts from previous years. An unused cap amount occurs when the concessional contributions you made in a financial year were less than your general concessional contributions cap. Unused cap amounts are available for a maximum of 5 years and will expire after this. This can be a tricky calculation and you should consult with a tax expert.
To use your unused cap amounts you need to meet 2 conditions:
- your total super balance at the end of 30 June of the previous financial year is less than $500,000
- you made concessional contributions in the financial year that exceeded your general concessional contributions cap.
Exceeding the contribution cap
If you exceed your contribution cap:
- the excess concessional contributions amount is included in your assessable income
- this amount will be taxed at your marginal tax rate.
There is a 15% tax offset to account for the contributions tax already paid by your super fund.
If you exceed your concessional contributions caps, you may elect to withdraw up to 85% of your excess concessional contributions from your super fund to help pay your income tax liability.
Tax on interest
While your fund is in accumulation phase the interest component on the taxable portion will pay 15% tax. From July 2017 no more than $1.6 million can be held in pension phase with the balance kept in accumulation phase and income taxed at 15%. Franked dividends can substantially reduce the effective rate paid.
Transition to retirement (TTR)
Pension fund earnings on the balance of a TTR pension will be taxed at 15% from 1 July 2017. This reduces the attraction of a TTR pension.
Tax on withdrawals
Most benefits are preserved and can only be withdrawn if a condition of release is met. Typical conditions of release are;
- Reaching preservation age and retiring
- Reaching age 65 even if not retired.
- Reaching preservation age and starting a TTR (Transition To Retirement) pension.
- Dying
Preservation age
| Date of birth | Preservation age |
|---|---|
| Before 1 July 1960 | 55 years |
| 1 July 1960 to 30 June 1961 | 56 years |
| 1 July 1961 to 30 June 1962 | 57 years |
| 1 July 1962 to 30 June 1963 | 58 years |
| 1 July 1963 to 30 June 1964 | 59 years |
| From 1 July 1964 | 60 years |
A partial withdrawal may be allowed for;
- Terminating gainful employment
- Incapacity
- Severe financial hardship.
- Compassionate grounds
- Terminal medical condition
Retirement means;
- under 60 years of age and ceasing gainful employment with no intention to become gainfully employed in the future.
- at least 60 years of age and leaving a job.
Reaching preservation age and retiring
Withdrawals from super are free of tax if you are 60 or older and meet a condition of release. The government has proposed that no more than $1.6 million can be held in a pension phase account where no tax is paid on earnings. The balance must be held in a “non-pension” account where tax is paid on interest. Withdrawals from either account will be free of tax if you are 60 or older and meet a condition of release.
Under age 60 and taking the benefit as a lump sum
The first $195,000 withdrawn as well as any tax free component are not taxed. A tax-free component is the post-tax contributions you made as well as some pre-July 2007 components. The balance of the withdrawal is taxed at 15% (plus Medicare). This assumes the fund was a complying fund taxed in the normal way. “Untaxed funds” are far more rare and withdrawals from these funds are taxed at a higher rate.
Under age 60 and taking the benefit as a pension
The tax free component will remain untaxed as a pension. The taxable component is added to taxable income and taxed at marginal rates. There will be a 15% offset on this component however which should reduce or even remove any tax payable.
Below preservation age
If you are able to access your super before reaching preservation age (severe financial hardship for example) then the tax free component pays no tax and the balance (if any) is taxed at 20%.
The taxable component of the untaxed element
This component is quite rare and is called the untaxed element because it hasn’t been taxed at 15%. If the recipient is 60 years of age or above the first $1.395 million of this component is taxed at 15% and the balance at 45%.
If the recipient is above preservation age but below age 60 then the first $195,000 is taxed at 15%, the balance up to $1.395 million at 30% with the balance is taxed at 45%. If the recipient is below preservation age the first $1.395 million is taxed at 30% and the balance at 45%. The balance of the withdrawal is taxed at 15% (plus Medicare). This assumes the fund was a complying fund taxed in the normal way. “Untaxed funds” are far more rare and withdrawals from these funds are taxed at a higher rate.
Tax on death benefits
How much tax is paid on my super if I die?
It depends on binding nominations and whether paid to dependents or non-dependents.
Tax on benefits paid on death
Your superannuation benefits are held in trust by the trustees of your fund. They own them but will probably pay the benefits to your estate if their is no binding nomination and to the beneficiaries you nominate if there is a binding nomination. If paid to the estate the executors pays tax on behalf of the beneficiaries as if the benefit had been paid directly to the beneficiaries (Medicare is excluded).
Death benefits paid to a dependent
A dependent is;
- A surviving spouse or de-facto spouse
- A former spouse or de-facto spouse
- A child of the deceased under 18 years
- Someone otherwise financially dependent on, or had an inter-dependency relationship with, the deceased
Death benefits paid as a lump sum
Super benefits paid to a dependent as a lump sum are tax-free.
Death benefits paid as an income stream
If either the beneficiary or deceased is over 60 no tax is paid on the taxed element. The untaxed element is added to assessable income with a 10% tax offset.
If neither the beneficiary nor deceased is over 60 the income stream is added to assessable income. There will be a 15% offset on the taxed element.
Beneficiaries under 25 years old who started receiving a death benefit as an income stream after 1 July 2007 must stop the income stream and commute remaining benefit to a lump sum on or before the date they turn 25. The lump sum is tax free.
Death benefits paid to a non-dependent
Non-dependents can only receive death benefits from super as a lump sum. The effective rate a non-dependent will pay on the taxable portion is the beneficiaries marginal tax rate or 15% whichever is lower (plus the Medicare). The untaxed component will be taxed at the beneficiaries marginal tax rate or 30% whichever is lower (plus the Medicare). Your member statement will identify the taxable, tax-free portions as well as the taxed and untaxed components.
Tax on disability benefits
A Total and Permanent Payment (TPD) payment could have the following components;
- tax-free component
- taxable component that the fund has paid tax on (the ‘taxed element’)
- taxable component that the fund has not paid tax on (the ‘untaxed element’)
Payment as a lump sum
The tax-free component of a disability lump sum is:
- the sum of the tax-free component of the benefit worked out apart from using the disability formula, plus
- the amount worked out under the disability formula below
Disability formula
Amount of lump sum benefit x (days to retirement / (service days + days to retirement))where:
- days to retirement is the number of days from the day on which the person stopped being capable of being gainfully employed to his or her last retirement day (generally age 65), and
- service days is the number of days from the day the member joined the fund or, if a rollover amount was received by the fund with an earlier service period start date, that earlier start date to the date of death. For an employer sponsored fund, service days may commence when the member’s employment commenced, if that was prior to the commencement of their fund membership.
The taxable component of the taxed element
There is no tax paid on this component if the recipient is 60 years of age or above.
If the recipient is above preservation age but below age 60 then the first $195,000 is tax-free and the balance is taxed at 15%. If the recipient is below preservation age the whole component is taxed at 20%.
The taxable component of the untaxed element
This component is quite rare and is called the untaxed element because it hasn’t been taxed at 15%. If the recipient is 60 years of age or above the first $1.395 million of this component is taxed at 15% and the balance at 45%. If the recipient is above preservation age but below age 60 then the first $195,000 is taxed at 15%, the balance up to $1.395 million at 30% and the balance is taxed at 45%. If the recipient is below preservation age the first $1.395 million is taxed at 30% and the balance at 45%.
Payment as an income stream
If the recipient is under age 60 and receives a disability super benefit paid as a super income stream, he or she is entitled to a 15% tax offset on the taxed element of the taxable component. Untaxed elements of taxable components do not receive the 15% tax offset.