Your superannuation benefit can be taxed at three stages:
- When making contributions. Contributions tax is payable on tax-deductible (concessional) contributions, which includes personal tax-deductible contributions, Superannuation Guarantee contributions and salary-sacrificed contributions. If you’re an employee, your employer claims a tax deduction for the concessional contributions (namely, for Superannuation Guarantee contributions and salary-sacrificed contributions). Salary sacrificed contributions also reduce an employee’s assessable income for tax purposes.
- When a super fund earns income. During accumulation phase, tax is payable on fund earnings. Accumulation phase is the period of time when you’re not taking a pension from your super fund. No tax is payable on earnings from assets financing an income stream (pension); that is, no tax is payable on a super account’s earnings when a super account is in pension phase.
- When receiving super benefits. Tax is payable if you receive a super benefit before the age of 60, or you receive a benefit from an untaxed source (some public sector funds). The tax-free component of a benefit is always tax-free, regardless of age.
You may also find useful, my summary table set out below.
| Possible taxes on your super | ||
| Tax | Tax Rates | What Part of Your Super is Taxed? |
| Contributions Taxes | ||
| ‘Contributions’ Tax* | 15% | Tax applies to any before-tax superannuation contributions |
| Earnings Taxes** | ||
| Investment Income Tax | 15% | Tax on investment earnings |
| Capital Gains Tax (CGT) | 15% (effective rate of 10% after CGT discount) | Tax on capital gains in your fund. Effective tax rate of 10% for gains on assets held for more than 12 months. |
| Benefit Payment Taxes | ||
| Under 60s | ||
| Lump Sums | 0% to 30% | Tax payable on ‘taxable component’^ for benefits above low rate cap^^ |
| Income Streams | Marginal tax rate (MTR) with 15% income stream offset for over-55s | Income sourced from ‘taxable component’^^ counted as part of taxable income so subject to MTR. |
| Aged 60 and Over | ||
| Lump Sums | 0% (except some public servants) | Tax-free payment. No tax is payable unless from untaxed source^^^. |
| Income Streams | 0% (except some public servants) | Tax-free income. No tax is payable unless from untaxed source^^^. |
*Contributions are included in a super fund’s assessable income, which is subject to earnings tax of 15 per cent. In relation to contributions, this tax is commonly known as ‘contributions tax’.
**No tax payable on earnings from pension assets, that is, assets financing a pension/income stream.
^ Superannuation benefits can be made up of two components: taxable component and tax-free component. Tax-free component is always tax-free and taxable component is taxed depending on size of benefit and age of fund member.
^^Taxable component of a lump sum is tax-free up to the low rate cap of $160,000 (for 2010/2011 year) for benefits from taxed source .
^^^An untaxed source is a super fund that hasn’t paid tax on employer super contributions and super fund earnings. Benefits from an untaxed source are benefits paid from some public sector super funds
Source: Superannuation For Dummies, 2nd edition, Trish Power (Wiley) Reproduced with permission.
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