How Super Is Taxed
The superannuation system has been designed to help you become as financially self-sufficient as possible after you retire. While the government will change the rules, regulations and rates from time to time, super is generally subject to different tax rules than your regular income and other investments, in order to make it as attractive as possible. While the tax structures can look like a complex topic, here is our attempt to help you understand the basics.
Usually, super savings are taxed at three key points: when it goes into a superannuation fund (through contributions); while it is in the fund (your investment earnings); and when you make a withdrawal (your super benefits).
Tax on your super contributions generally depends on the type of contribution and how much you contribute over a period of time. Contributions you make using before-tax income, otherwise known as ‘concessional contributions’ (via a salary sacrifice arrangement), are generally taxed at 15%. However, limits apply, and any contribution amount above the yearly cap limit is included in your income tax assessment and taxed at your marginal tax rate. For the 2018/2019 financial year, the concessional contributions cap limit is $25,000 per annum.
On the other hand, contributions from after-tax income (‘non-concessional contributions’) are not taxed in your super fund – since you have already paid tax on this income. Similar to concessional contributions though, cap limits apply. Any contribution amount exceeding the yearly cap limit may be subject to a penalty tax. For 2018/2019 financial year, the non-concessional contributions cap limit is $100,000 per annum.
Investment earnings on your super are taxed at a maximum rate of 15%. This tax is deducted from your super fund’s investment earnings before they are added to your super account.
When you reach retirement age (or ‘preservation age’), and look to access your super savings, the tax payable on your super benefits depends on a number of factors, such as your age and whether your super comes from a previously taxed or untaxed source. Tax on both super and death benefits is also affected by whether the benefits are paid as a lump sum or income stream (regular payments).