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  • How tax applies to your super

    To work out how your super withdrawal will be taxed you need to know:

    • your preservation age and the age you will be when you get the payment
    • whether you will get the payment as an income stream or lump sum.
    • the type of super income stream you receive
    • whether the money in your super account is tax-free or taxable
    • whether you are receiving a death benefit income stream

    These factors determine whether you:

    • pay tax on the withdrawal (for example, whether it is taxable income)
    • get tax offsets that reduce the amount of tax you pay.

    To find the tax rates for your super payment, choose the link that applies at the time you expect to withdraw the super:

    Tax-free and taxable super

    To understand how your super payment will be taxed you need to know whether the money in your super account is tax-free or taxable when you withdraw it.

    Super that is tax-free when withdrawn is known as the 'tax-free component' of your super. Super that is taxable when withdrawn is known as the 'taxable component' of your super.

    The taxable component may consist of a taxed element or an untaxed element, depending on whether the benefit is paid from a taxed or untaxed source. Your super provider can tell you how much of the money in your super account is tax-free or taxable.

    A super benefit containing an untaxed element is most commonly paid by a public sector fund for commonwealth, state and territory government departments.

    Why some super is tax-free and some taxable

    Whether the money in your super account is tax-free or taxable when you withdraw it generally depends on the type of contributions made and whether tax was paid on it.

    Non-concessional (after-tax) contributions – those made from income after you paid tax on it – are tax-free when withdrawn from your super account. Tax-free super includes personal contributions you made from your after-tax income, unless you were allowed a tax deduction for them.

    Concessional (before-tax) contributions – those made from income before you paid tax on it – are taxable when withdrawn from your super account. The types of contributions include:

    • the super contributions your employer must make for you
    • money you salary sacrifice into super
    • super contributions you were allowed to claim a tax deduction for.

    The amount of tax you must pay when you withdraw taxable super depends on your age and whether your provider paid tax on it.

    Your provider may have paid tax on the taxable super at the rate of 15%. This super is the 'taxed element' of your taxable super. If your provider has not paid tax on some of the taxable super in your account, this money is the 'untaxed element' of your taxable super.

    Generally your super benefit will include both a tax-free and a taxable component. When you make a withdrawal, your provider calculates the components of the withdrawal based on the proportion of components that make up the total value of your super account.

    The amount of each component is calculated at the following times:

    • lump sum – just before it is paid
    • income stream – when the income stream starts
    • income stream commuted to a lump sum – the components are calculated when the income stream started. (However, if the income stream is a deferred super income stream, the components are calculated just before the commutation occurred)
    • an income stream commuted back into your super – before a new benefit is paid.

    You can't choose to withdraw only from the tax-free component of your super account unless the total amount of your account is tax-free.

    See also:

    If your age is less than your preservation age

    This section applies to you if both:

    • your current age is less than your preservation age
    • you were not in receipt of a death benefit (reversionary) capped defined benefit income stream where the deceased was 60 years old or older at the time of death.

    To work out how your super payment will be taxed you need to know how much of the money in your super account is a:

    • tax-free component
    • taxable component the super provider paid tax on (taxed element)
    • taxable component the super provider has not paid tax on (untaxed element).

    Find out about:

    Tax on withdrawals of tax-free component

    You don’t pay tax on the tax free component of your super where you:

    • withdraw it as a lump sum
    • receive an account based income stream.

    Tax maybe payable on the tax-free component of your super income stream where:

    • you are in receipt of a death benefit capped defined benefit income stream where the deceased was 60 years old or older at the time of death
    • you exceed your defined benefit income cap.

    The exception is where you have illegally gained early access to your super before you have met a condition of release. In these circumstances, the entire amount of your super benefit will be taxable regardless of whether it has a tax-free component.

    Tax on withdrawals of taxable component

    The taxable component of your payment will be taxed as shown in this table.

    Type of super

    Type of withdrawal

    Effective tax rate (including Medicare levy)

    Taxable component – taxed element

    Income stream

    Your marginal tax rate – however, if you receive the income stream as a disability super benefit, you are entitled to a tax offset of 15% on the taxed element

    Taxable component – taxed element

    Lump sum

    Your marginal tax rate or 22%, whichever is lower

    Taxable component – untaxed element

    Income stream

    Your marginal tax rate

    Taxable component – untaxed element

    Lump sum

    Your marginal tax rate or 32%, whichever is lower – unless the lump sum is more than the untaxed plan cap

    Other tax rates may apply in some special circumstances.

    See also:

    Filling out your tax return

    Your super provider will send you a payment summary showing:

    • how much of the super you received is taxable and how much is tax-free
    • how much tax they withheld from the payment to pay on your behalf
    • any tax offset applicable to the taxed element you receive.

    When you fill out your tax return you must include the taxable component of your super payment as assessable income.

    Only claim tax offsets for super income streams in the offset section of your tax return – tax offsets for super lump sums are calculated by us.

    Example: lump sum

    Suzi is 50 years old and applies to withdraw some super on compassionate grounds.

    Suzi receives a lump sum super benefit of $11,000. Her fund tells her this consists of $1,000 tax-free and $10,000 taxable super. The entire taxable super was taxed in the fund.

    When Suzi completes her tax return she includes the $10,000 taxable super as income. This results in her paying the following effective tax rates.

    Effective tax rates paid by Suzi

    Type of super

    Effective tax rate (including Medicare levy)

    Tax-free component: $1,000

    No tax

    Taxable component – taxed element: $10,000

    Her marginal tax rate or 22%, whichever is lower

     

    End of example

     

    Example: income stream

    George is 53 years old and receives an annual payment of $18,000 from his super because he has a temporary incapacity.

    His fund tells him the entire amount is taxable super that was taxed in the fund.

    When George completes his tax return he includes the $18,000 taxable super as income. He is not eligible to claim the disability super benefit tax offset, so he pays the following effective rate of tax.

    Effective tax rate paid by George

    Type of super

    Effective tax rate (including Medicare levy)

    Taxable component – taxed element: $18,000

    His marginal tax rate

     

    End of example

    If you are between your preservation age and 60 years old

    To work out how your super payment will be taxed, you need to know how much of the money paid to you was attributable to the following components:

    • tax-free component
    • taxable component the super provider has paid tax on (taxed element)
    • taxable component the super provider has not paid tax on (untaxed element).

    Find out about:

    Tax on withdrawals of tax-free component

    You don’t pay tax on the tax free component of your super where you:

    • withdraw it as a lump sum
    • receive an account based income stream
    • receive a capped defined benefit income stream and you were between your preservation aged and less than 60 years old, which was not a death benefit income stream where the deceased was 60 years old or older at the time of death.

    The exception is where you have illegally gained early access to your super before you have met a condition of release. In these circumstances, the entire amount of your super benefit will be taxable regardless of whether it has a tax-free component.

    Tax on withdrawals of taxable component

    The taxable component of your payment will be taxed as shown in this table.

    Type of super

    Type of withdrawal

    Effective tax rate (including Medicare levy, up to the low rate cap)

    Effective tax rate (including Medicare levy, above the low rate cap)

    Taxable component – taxed element

    Income stream

    Your marginal tax rate less 15% tax offset

    Your marginal tax rate less 15% tax offset

    Taxable component – taxed element

    Lump sum

    0%

    Your marginal tax rate or 17%, whichever is lower

    Taxable component – untaxed element

    Income stream

    Your marginal tax rate

    Your marginal tax rate

    Taxable component – untaxed element

    Lump sum

    Your marginal tax rate or 17%, whichever is lower

    Your marginal tax rate or 32%, whichever is lower –unless the lump sum is more than the untaxed plan cap, in which case the amount above the cap will be taxed at the top marginal rate

    Filling out your tax return

    Your provider will send you a payment summary which shows:

    • how much of the super you received is taxable and how much is tax-free
    • how much tax they withheld from the payment to pay on your behalf
    • any tax offset applicable to the taxed element you receive.
    • if you receive a super death benefit capped defined benefit income stream you will need to go to the Defined benefit income cap tool to work out what you need to include in your income tax return.

    You must include the taxable component of your super payment as assessable income on your tax return.

    Only claim tax offsets for super income streams in the offset section of your tax return – tax offsets for super lump sums are calculated by us.

    If you're between your preservation age and 60 years old, and receive a lump sum super benefit that includes a taxable component, this is assessable income you must include in your tax return. This is the case even if the amount you receive is below the low-rate cap amount and zero tax has been withheld by your provider.

    Example: lump sum

    Tony is 56 years old and is retired. He receives his first lump sum super payment of $350,000 on 25 July 2018. His fund tells him this amount consists of $100,000 tax-free component and $250,000 taxable component. All the taxable component was taxed in the fund.

    Tony includes the $250,000 taxable component as income on his 2018–19 tax return. This results in him paying the following effective rates of tax:

    Effective tax rates paid by Tony

    Type of super

    Effective tax rate (including Medicare levy)

    Tax-free component: $100,000

    No tax

    Taxable component – taxed element (up to the low rate cap): $205,000

    0%

    Taxable component – taxed element (over the low rate cap): $45,000

    17%

     

    End of example

    Example: income stream

    Jenny is 55 years old and has begun a transition to retirement income stream. In addition to her income from employment ($40,000 a year) she gets a transition to retirement income stream from her super as an annual payment.

    On 29 August 2018, she receives $28,000. Her fund tells her it is all taxable component that was taxed in the fund. It also tells her she is able to claim a 15% tax offset.

    Jenny includes the $28,000 as income on her tax return. She claims a tax offset that results in her paying the following effective rate of tax on the income stream:

    Effective tax rate paid by Jenny

    Type of super

    Effective tax rate (including Medicare levy)

    Taxable component – taxed element: $28,000

    Her marginal tax rate less 15% tax offset)

     

    End of example

    You are in receipt of a capped defined death benefit

    This section applies to you if you are:

    • 60 years old and have a capped defined benefit income stream
    • less than 60 years old and in receipt of a death benefit (reversionary) capped defined benefit income stream where the deceased was 60 years old or older at the time of death
    • 60 years old or older and in receipt of a super income stream which is not a capped defined benefit income stream and you have an untaxed element
    • 60 years old or older and in receipt of a super lump sum and you have an untaxed element.

    Where you are receiving an account based pension you do not need to pay tax on the taxed element or tax-free component after you turn 60 years old. To work out how your super payment will be taxed you need to know:

    • your defined benefit income cap (if applicable)
    • whether the income stream is a death benefit (reversionary) income stream
    • the amount of the    
      • tax-free component
      • taxable component that the super provider has paid tax on (taxed element)
      • taxable component that the super provider has not paid tax on (untaxed element).

    Find out about:

    Tax on withdrawals of tax-free component

    You don’t pay tax on the tax-free component of your super where you withdraw it as a lump sum.

    You may be required to include the tax free component in your assessable income where you are in receipt of a capped defined benefit income stream and:

    • you are in receipt of a death benefit income stream where the deceased was aged 60 years old or older at the time of death; and
    • the combined total of your tax-free component and taxed element (taxed source) is in excess of your defined benefit income cap.

    The exception is where you have illegally gained early access to your super before you have met a condition of release. In these circumstances, the entire amount of your super benefit will be taxable regardless of whether it has a tax-free component.

    Tax on withdrawals of taxable component (including an account-based income stream)

    Type of withdrawal

    Type of component

    Effective tax rate (including Medicare levy)

    Income stream

    Taxable component – taxed element

    No tax

    Income stream

    Tax free component

    No tax

    Lump sum

    Taxable component – taxed element

    No tax

    Income stream

    Taxable Component – untaxed element

    Your marginal tax rate

    Lump sum

    Taxable component – untaxed element

    Your marginal tax rate or 17%, whichever is lower – unless the lump sum is more than the untaxed plan cap, in which case the amount above the cap will be taxed at the top marginal rate

    Tax on withdrawals of a capped defined benefit income stream

    Type of withdrawal

    Type of super

    Effective tax rate (including Medicare levy)

    Income stream

    Tax-free component and or Taxable component – taxed element is above the defined benefit income cap

    50% of the amount above the cap is assessed at your marginal tax rates. This is known as 'assessable amount from your capped defined benefit income stream'

    Income stream

    Tax-free component and or Taxable component – taxed element is below the defined benefit income cap

    No tax

    Income stream

    Taxable component – untaxed element

    Your marginal tax rate

    Filling out your tax return

    Your provider will send you a payment summary which shows:

    • how much of the super you received is taxable and how much is tax-free
    • how much tax they withheld from the payment to pay on your behalf
    • the tax offset amount which should be blank as you will need to determine how much offset you are entitled to
    • whether you are in receipt of a capped defined benefit income stream where the deceased was older than 60 years old at the time of death.

    If you are in receipt of a super lump sum payment you don't enter the tax-free component or the tax element part of the taxable component of your super lump sum payment on your return.

    Tax offsets for super lump sums are calculated by us.

    Example: Lump sum

    Mei is 60 years old and receives a lump sum of $380,000 from her super on 25 September 2018.

    The payment consists of $45,000 tax-free component and $335,000 taxable component. The taxable component includes $130,000 that was taxed in the fund and $205,000 the fund has not paid tax on.

    Mei includes the $205,000 as income on her tax return and pays the following effective rates of tax:

    Effective tax rates paid by Mei

    Type of super

    Effective tax rate (including Medicare levy)

    Tax-free component: $45,000

    No tax

    Taxable component – taxed element: $130,000

    No tax

    Taxable component – untaxed element: $205,000

    Her marginal tax rate or 17%, whichever is lower (the untaxed part of the lump sum is less than the untaxed plan cap for 2018–19 of $1.480 million)

     

    End of example

    If you are in receipt of a capped defined benefit income stream you must include the:

    Find out more about how to fill in your tax return at 7 Australian annuities and super income streams.

    Only claim tax offsets for super income streams in the offset section of your tax return. Find out more about how to work out your tax offset at T2 Australian super income stream.

    Example: Capped defined benefit income stream

    John is 62 years old and receives an income stream of $117,000 in 2017–18.

    The payment was for the full year and made up of $67,000 tax-free component and $50,000 taxable component – taxed element.

    John includes the following in his tax return and pays the following effective rates of tax:

    The effective tax rate paid by John is as follows.

    Type of super:

    • Tax-free component + taxed element = $117,000
    • Defined benefit income cap $100,000
    • $117,000 − 100,000 = 17,000
    • Assessable amount from a capped defined benefit income stream is 17,000 ÷ 2 (50% of the amount over the cap)
    • John includes $8,500 at 7M on his tax return.

    Effective tax rate (including Medicare levy):

    • 50% of the amount above the cap is assessed at marginal tax rates.
    • This is known as assessable amount from your capped defined benefit income stream.
    End of example

    See also:

    Untaxed plan cap amount

    The untaxed plan cap amount is the maximum amount of the untaxed elements subject to concessional tax rates. Amounts above the untaxed plan cap are taxed at the top marginal rate. The untaxed plan cap applies separately to each super provider you receive a super lump sum from.

    The untaxed plan cap is $1.515 million in 2019–20 and $1.480 million in 2018–19. The top marginal rate is 47% (including Medicare levy).

    In the 2015, 2016 and 2017 income years the 2% temporary budget repair levy will apply to amounts that exceed the untaxed plan cap amount. The untaxed plan cap is $1.355 million in 2014–15, $1.395 million in 2015–16 and $1.415 million in 2016–17.

    See also:

    Low rate cap amount

    The low rate cap amount applies if you reach your preservation age but are under 60 years old.

    The low rate cap is a limit on the amount of taxable components (taxed and untaxed element) that can be taxed at a concessional (lower) rate of tax.

    It's a lifetime cap, which is reduced by any taxable component you receive from any payer after you reach your preservation age (it cannot be reduced below zero).

    Once you reach the low rate cap, any further money you withdraw as a lump sum is taxed at a different rate.

    The low rate cap is $210,000 in 2019–20 and $205,000 in 2018–19.

    If you're between your preservation age and 60 years old and receive a lump sum super benefit that includes a taxable component, you must include it in your tax return. This is the case even if the amount you receive is below the low-rate cap amount and zero tax has been withheld by the super provider.

    See also:

    Temporary budget repair levy

    2015, 2016 and 2017 income years only

    The temporary budget repair levy is payable at a rate of 2% for taxable incomes over $180,000. It applies from 1 July 2014 to 30 June 2017, for both resident and non-resident individuals.

    The levy will impact some super benefit payments; however, tax offsets continue to have effect to ensure the relevant maximum rate of tax is applied. This means your provider is generally not required to withhold the 2% levy when paying a super benefit, unless the benefit is:

    • a lump sum containing an untaxed element in excess of the untaxed plan cap amount
    • an income stream payment above $180,000.

    You may still have to pay the levy when you lodge your tax return if your taxable income (including the taxable component of your super payment) is above $180,000.

    See also:

      Last modified: 29 Aug 2019QC 37785