• 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 the money in your super account is tax-free or taxable
    • whether you will get the payment as an income stream or lump sum.

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    Super money that is tax-free when withdrawn is known as the 'tax-free component' of your super. Super money that is taxable when withdrawn is known as the 'taxable component' of your super.

    The taxable component may consist of a taxed element and/or an untaxed element, depending on whether the benefit is paid from a taxed or untaxed source. Your super fund 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 super 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    Non-concessional (after-tax) contributions – those made from income after you paid tax on it – are tax-free when withdrawn from your super account.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 claimed 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    Concessional (before-tax) contributions – those made from income before you paid tax on it – are taxable when withdrawn from your super account.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 super fund paid tax on it.

    Your super fund may have paid tax on the taxable super at the rate of 15%. This super money is the 'taxed element' of your taxable super. If your super fund 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 fund 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 – before the income stream starts
    • income stream commuted to a lump sum – the components calculated for the income stream are used
    • 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

    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 fund paid tax on (the 'taxed element')
    • taxable component the fund has not paid tax on (the 'untaxed element').

    See also:

    Tax on withdrawals of tax-free component

    You don't pay tax on the tax-free component of your super when you withdraw it regardless of your age or the way you withdraw it.

    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

    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)

    If your taxable income is over $180,000 the temporary budget repair levy may apply from 1 July 2014 to 30 June 2017.

    Other tax rates may apply in some special circumstances:

    Filling out your tax return

    Your super fund 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 you may be able to claim (for your super income stream).

    When you fill out your tax return you must include the taxable component of your super payment as assessable income. You don't need to put the tax-free component of your super payment 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.

    Example: Lump sum

    Suzi is 50 years old and applies to the Department of Human Services to withdraw some super on compassionate grounds.

    On 17 October 2014, she gets a lump sum super benefit of $11,000. Her super 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:

    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

    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 super 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 Australian super income stream tax offset so he pays the following effective rate of tax:

    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 in your super account is a:

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

    See also:

    Tax on withdrawals of tax-free component

    You don't pay tax on the tax-free component of your super when you withdraw it regardless of your age or the way you withdraw it.

    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 super fund 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 you may be able to claim (for your super income stream).

    You must include the taxable component of your super payment as assessable income on your tax return. You don't need to enter the tax-free component of your super payment 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 income 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 super fund.

    Example: Lump sum

    Tony is 56 years old and is retired. He receives his first lump sum super payment of $300,000 on 25 July 2015. His super fund tells him this amount consists of $100,000 tax-free component and $200,000 taxable component. All the taxable component was taxed in the fund.

    Tony includes the $200,000 taxable component as income on his tax return. This results in him paying the following effective rates of tax:

    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): $195,000

    0%

    Taxable component – taxed element (over the low rate cap): $5,000

    17%

    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 2014, she receives $28,000. Her super 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:

    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

    If you are 60 years old or more

    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 that the fund has paid tax on (the 'taxed element')
    • taxable component that the fund has not paid tax on (the 'untaxed element').

    See also:

    Tax on withdrawals of tax-free component

    You don't pay tax on the tax-free component of your super when you withdraw it regardless of your age or the way you withdraw it.

    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

    No tax

    Taxable component – taxed element

    Lump sum

    No tax

    Taxable component – untaxed element

    Income stream

    Your marginal tax rate less tax offset of 10%

    Taxable component – untaxed element

    Lump sum

    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)

    Filling out your tax return

    Your super fund 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 you may be able to claim (for your super income stream).

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

    As you're over 60 years old, you don't enter the tax-free component or the taxed element part of the taxable component of your super payment 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.

    Example: Lump sum

    Mei is 60 years old and receives a lump sum of $330,000 from her super on 25 September 2015.

    The payment consists of $45,000 tax-free component and $285,000 taxable component. The taxable component includes $130,000 that was taxed in the super fund and $155,000 the super fund has not paid tax on.

    Mei includes the $155,000 as income on her tax return and pays the following effective rates of tax:

    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: $155,000

    Her marginal tax rate or 17%, whichever is lower (The untaxed part of the lump sum is less than the untaxed plan cap for 2015–16 of $1.395 million)

    Example: Income stream

    John is 60 years old and receives an income stream of $73,000 in 2014–15. His super fund tells him this payment is all taxable component that was taxed in the fund.

    John does not include any of the super as income on his tax return. He pays the following effective rates of tax:

    Type of super

    Effective tax rate (including Medicare levy)

    Taxable component – taxed element: $73,000

    No tax

     

    End of example

    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 fund you receive a super lump sum from.

    The untaxed plan cap is $1.395 million in 2015–16 and $1.415 million in 2016–17. The top marginal rate is 49% (including Medicare levy and the temporary budget repair levy).

    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 $185,000 in 2014–15 and $195,000 in 2015–16 and 2016–17.

    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 income 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 fund.

    See also:

    Temporary budget repair levy

    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 super fund 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 income tax return if your taxable income (including the taxable component of your super payment) is above $180,000.

    See also:

      Last modified: 01 Sep 2016QC 37785