Taxation of Australian Superannuation
Australian superannuation is taxed in a very unique manner compared to other systems around the world - many of whom provide a tax deduction for contributions, tax shelter the earnings within the fund and then fully tax any withdrawals at full marginal tax rates. In contrast, Australian superannuation typically taxes both contributions and earnings and then provides almost full tax relief on payments - see below for more details
Contributions
All contributions to a superannuation fund by an employer, or indeed by an individual out of before tax dollars (also known as “salary sacrifice”), are called Concessional Contributions and attract a contributions tax of 15%. When an individual's adjusted taxable income exceeds $250,000 per annum (previously $300,000 until July 1, 2017) then their contributions are subject to an additional tax of 15%. No contributions tax applies in relation to Non-Concessional (i.e. after tax) contributions.
Taxation within the Superannuation Fund
Income earned within the superannuation fund (investment earnings) are taxed at a maximum rate of 15% - in practice the rate may be appreciably lower if the fund has access to franking credits from Australian dividends. Capital gains generated where the asset has been held for longer than 12 months within the fund are taxed at 10%. These tax rates are significantly lower than those applying to Australian tax residents, although that may not be the case with expatriates who are resident in zero or low tax environments.
Tax on Withdrawals
Superannuation benefits are fundamentally made up of two components, taxable and tax-free, which are taxed differently when withdrawals are made either as income streams or on a lump sum basis once you are eligible to access the funds - as illustrated in the table below:
A. Super Income Streams - Pensions and Annuities
| Income Streams - Tax Treatment: Australian Residents | ||
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Age 55 - 59
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Age 60+
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Taxable Component, includes:
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Taxable component of super income is added to taxable income and taxed at marginal rate, less a tax offset equal to 15% of the taxable component. | No tax unless the super fund is an "untaxed" fund - usually Government/public service funds. |
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Tax-Free Component, includes:
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No tax applicable in relation to this component of super income. | No tax applicable in relation to this component of super income. |
B. Lump Sum Withdrawals
| Lump Sum Withdrawals - Tax Treatment: Australian Residents | ||
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Age 55 - 59
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Age 60+
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Taxable Component, includes:
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You can withdraw up to the low rate threshold, currently $235,000 (2023/24 tax year), tax-free. Any amount in excess will be taxed at the lower of 17% or your marginal tax rate. The threshold is a lifetime limit and does not include the tax-free portion. | Nil tax unless the super fund is an "untaxed" fund - usually Government funds. |
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Tax-Free Component, includes:
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No tax applicable in relation to this component of super. | No tax applicable in relation to this component of super. |
C. Transition to Retirement Pension (TRIP)
Under a TRIP you are restricted to withdrawing a maximum of 10% of the balance each financial year and you are not allowed to withdraw lump sums - however, although retirement is not required to access your superannuation, you do need to have reached, or proceeded beyond, your preservation age.
These restrictions do not affect the tax treatment of the money you receive from the fund; the tax treatment is the same as retirement income streams purchased with super money - see Table A above.
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