Reaching preservation age: Taking super, tax and timing

Note: Preservation age is 55 years for anyone born before July 1960, but if you turned 55 on or after 1 July 2015 (or will turn 55 after that date), then your preservation age is not 55 years. Your preservation age will then be at least 56 years if born on or after 1 July 1961, or at least 57 years if born on or after 1 July 1962, or at least 58 years if born or after 1 July 1963, or at least 59 years if born on or after 1 July 1963, or 60 years (if you were born after June 1964). For more information on your preservation age see SuperGuide articles Accessing super: What is my preservation age? and Accessing super: Preservation age moves to 59 years and Retirement Age Reckoner: Discover your preservation age and Age Pension age.

Assuming an individual has reached preservation age and has access to super benefits, that is they have retired (or satisfied another condition of release), then how a lump sum is taxed depends on the components of the benefit.

A super benefit can be made up of two components:

• Tax-free component
• Taxable component.

The tax-free component of the super benefit is tax-free regardless of the age when a person receives the benefit. The taxable component is taxable depending on the age that the individual receives the benefit. If the individual receives the benefit on or after the age of 60, then the entire benefit – both tax-free and taxable component – is free of tax.

If an individual retires, and receives a superannuation lump sum on or after his or her preservation age (but before the age of 60), he or she can take advantage of the low-rate cap, an indexed lifetime limit that applies to an individual’s taxable component. An individual can receive up to $200,000 (for the 2017/2018 year) or $205,000 (for the 2018/2019 year) of the taxable component tax-free, provided the component is a taxed element (nearly all super benefits fall into this category, except certain benefits from public sector funds).

The low-rate cap is in addition to any tax-free component. If the taxable component of a lump sum exceeds the lifetime low-rate cap of $200,000 (for the 2017/2018 year), or $205,000 (for the 2018/2019 year)  then tax is payable on the taxable component at the rate of 15.0% (plus Medicare levy). For more information on the tax treatment of super benefits received under the age of 60, see SuperGuide articles Retiring before the age of 60: the tax deal and Super tax tables: When UNDER 60 years of age.

Note: If an individual has withdrawn super benefits in the past, he or she may have used up some, or most, of their low-rate cap which means he or she may have to pay tax on the taxable component when he or she takes additional lump sums.

When an individual turns 60, and the superannuation benefits are from a taxed source (that is, nearly all super benefits except certain benefits from some public sector super funds), then any superannuation lump sums can be taken free of tax, regardless of previous superannuation withdrawals. For more information on the tax treatment of super benefits received on or after the age of 60, see SuperGuide articles Tax-free super for over-60s, except for some and Super tax tables: When OVER 60 years of age.