- The tax you pay on super is lower–for most people–than the tax you would pay on your regular income
- Generally, your super contributions are taxed at a rate of 15% which is deducted by your super fund
- If you’re retired and accessing your super as a retirement pension, your investment earnings will not be charged tax in your super fund.
Super remains one of the most tax-effective ways to save for retirement.
Tax concessions, combined with the magic of compound interest, make it a powerful investment vehicle.
More importantly, the tax you pay on super is lower–for most people–than the tax you would pay on your regular income. When you reach retirement, generally you can also access your money tax-free from age 60.
In this article we look at how super is taxed in Australia to help you make the best decisions when it comes to your retirement savings.
Employer super contributions: how they’re taxed
If you work in Australia in any capacity, you must be paid super by your employer. This is paid on top of your annual salary and is known as the Super Guarantee (SG).
Currently, your employer must contribute an amount equal to 10% of your salary into super (subject to a prescribed maximum salary). This rate will continue to increase every year until it reaches 12% in 2025.
Generally, the contributions are taxed at a rate of 15% which is deducted by your super fund. In most cases, this rate is a lot less than what you would be taxed on your regular income.
Your own super contributions: how they’re taxed
Contributing to super with your take-home pay
If you put a little extra money into your super from your savings or take-home pay–on which you don’t claim a tax deduction–you won’t be charged tax, up to $110,000 per year. If you exceed this amount, you’ll be taxed at your marginal rate, less 15% tax paid by your super fund.
Salary sacrificing into super
If you decide to sacrifice some of your salary to super, that money is taxed at a rate of 15% in your super fund. In most cases, this rate is a lot less than what you would be taxed on your regular income.
There is a limit on how much you can add to super using your before-tax income–currently $27,500 per year. If you exceed this limit, you will then be taxed at your marginal tax rate.
Super investment earnings: how they’re taxed
When you’re still working and growing your super, what you earn from your super investments will generally be taxed at 15%.
Your super fund may also be liable to pay capital gains tax on any profits it makes when selling fund assets such as shares or other property. This is taxed at 10% if the asset is held for more than a year or 15% if held for less.
If you’re retired and accessing your super as a retirement pension, your investment earnings will not be charged tax in your super fund (but this is subject to a maximum amount known as a transfer balance cap that you can transfer into your pension accounts), nor would your fund be required to pay any capital gains tax.
Seek help from a professional
The tax applied to super can be complicated. If you value the experience of experts in other aspects of your life, don't discount it when it comes to managing your life savings.
Financial advisers can also help you with other aspects of your financial life too—savings, insurance, debt—while keeping you on track to achieve your goals.
More importantly, they can answer questions like:
- What age can I stop working and retire?
- What strategies can I use to build my wealth?
- How can I ensure my wealth is transferred to my children?
Start the conversation to see how a financial adviser can help you.
Retirement income and tax
Once you’ve met certain conditions like reaching your preservation age–between 55 and 60 depending on your date of birth–you can start accessing your super in a number of ways.
Accessing super as a pension
In most cases, if you’re 60 or over and choose to withdraw your super as a pension–in the form of a retirement income stream–it will be tax-free.
However, tax may apply to earnings on a pension that exceeds the “transfer balance cap”. This is a lifetime limit on the total amount of super that can be transferred into retirement phase income streams and is currently $1.7 million.
If you’re under 60, a portion of your super will be taxed at your marginal tax rate. A 15% tax offset will generally be available to lower any tax that may be payable.
Accessing super when you’ve reached retirement age and still working
A transition to retirement (TTR) pension enables you to access your super while you’re still working, once you’ve reached preservation age.
When you reach 60, your pension payments are tax-free. However, under 60, your pension payments are taxed at your marginal tax rate, but you will receive a 15% tax offset.
Investment earnings from a TTR pension are taxed at a maximum rate of 15%.
Accessing super as a lump sum payment
You may be able to withdraw your super as a lump sum payment when you retire. Generally, you can access this money without paying tax if you’re over 60.
Death: how your super’s taxed
When you pass away, your super will be paid to your beneficiaries. If you don’t nominate a beneficiary, your super fund may decide who receives your money. The amount of tax that will apply to this money depends on the following:
- Whether your beneficiaries are classified as a ‘dependant’–such as a spouse or a child
- It’s paid to them as a lump sum or as a pension
- It contains a taxable component (see table below).
If your beneficiary receives your super as a lump sum, they will be taxed on various components as shown in the table below.
|Beneficiary (includes when paid via the estate)||Tax component||Maximum tax rate|
|Dependant for tax purposes1||Tax-free an taxable||Tax-free|
|Non-dependant for tax purposes||Tax-free||Tax-free|
|Taxable (taxed element)||15%2|
|Taxable (untaxed element3)||30%2|
If your beneficiary receives your super as a pension, they will be taxed on various components as shown below.
|Types of death benefit||Age of beneficiary||Age of deceased||
Tax on taxable component
|Paid to dependant||60 years or older||60 years or older||Tax-free|
|Under 60 years||Under 60 years||Taxed at marginal rates with a tax offset of 15%|
1 Includes a spouse, former spouse, child under 18, child 18 and over and dependant, financial dependant person and interdependent person.
2 Plus Medicare levy, unless paid to deceased’s estate.
3 Broadly, an untaxed element arises where the fund has claimed a tax deduction for the insurance premiums on your account
Important information and disclaimer
This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of the group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). The information in this article is current as at January 2022 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.