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Home / How super works / Super and tax

Your tax guide to accessing your super under age 60

July 16, 2020 by Janine Mace Leave a Comment

Reading time: 6 minutes

On this page

  • Want your super benefit? Then get ready to meet a condition of release
  • Withdrawing your super
  • Accessing super before age 60: Terms you need to know
  • Tax free or taxable? Understanding the different components
  • Withdrawing from an untaxed defined benefit fund: Tax implications
  • Withdrawals by temporary residents: Tax implications
  • Tax time: Filling in your tax return

Many people dream about retiring early, taking their super and heading off to enjoy the favourite activities.

But it’s important to understand the tax implications before you take the plunge.

So, just what are the taxes that could apply if you access your super under age 60?

See also: Your tax guide to accessing your super over age 60 benefits

Want your super benefit? Then get ready to meet a condition of release

As your super savings are designed to be used in your retirement, there are strict rules governing your ability to access them before you reach your preservation age.

You need to speak to your super fund to apply for access before reaching your preservation age.

For more information see SuperGuide article What age can I access my super (Preservation Age)?


Need to know: Your preservation age is not the same as the age you can apply to receive the Age Pension. Your preservation age only relates to accessing the benefits in your super account.


Once you reach your preservation age, it’s easier to access your super benefits, but you still need to meet a condition of release and some of these restrict whether you can take a lump sum or income stream.


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For more information see SuperGuide article When can I access my super? All conditions of release explained.

Withdrawing your super

When you meet a condition of release and apply to access your super benefit, you can generally choose to withdraw from your super as an income stream, lump sum or a combination of the two:

  • Income stream (super pension or annuity): If you decide to take a super income stream, you will receive a series of regular payments from your super fund. These must be paid at least annually and must meet the minimum annual payment rules.
  • Lump sum: This is a single payment that withdraws some or all of your super. If you take a lump sum the money is no longer within the super system and if you invest it, any return on your investment will be taxed like normal income, not super. This means the concessional tax rate of 15% on your super account’s earnings will no longer apply. Instead the earnings will be taxed at your marginal tax rate, which can be as high as 45% (plus the Medicare levy).

Need to know: If you are currently receiving payments from Centrelink, check before you access your super benefit, as it may affect your entitlement to a benefit and the amount you receive because many government benefits are based on your taxable income.

To find out more, contact Centrelink on 13 23 00 or check the Centrelink website.


Accessing super before age 60: Terms you need to know

When you withdraw your super benefits before age 60, you need to learn some new jargon. Although the terms sound pretty boring, each factor helps determine how much – if any – tax you will pay.

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

  • Your preservation age
  • Whether you plan to take a lump sum or an income stream
  • Your tax-free and taxable components
  • The current low-rate threshold or cap.

Tax free or taxable? Understanding the different components

Your super account contains both tax-free and taxable components.

  • The tax-free component mainly consists of your non-concessional (after-tax) contributions into your super account, as these amounts come from income on which you have already paid tax. (If you were a member of a super fund before July 2007, you may also have other tax-free amounts in your super account.)
  • The taxable component typically comes from your concessional (before-tax) contributions. These include employer contributions (such as Super Guarantee contributions), salary-sacrifice contributions and any super contributions for which you claimed a tax deduction.

This taxable component is further divided into taxed and untaxed elements:

  • In most cases, your super fund will have paid the 15% contributions tax imposed on your taxable component. This part of your super benefit is called the taxed element of your taxable component (taxable component – taxed element).
  • If your super fund has not paid tax on any part of your taxable component, those amounts are called the untaxed element of your taxable component (taxable component – untaxed element).

Need to know: Any lump sum withdrawals from your super account must be made in the same proportions as your tax-free and taxable components.

You cannot choose to withdraw only from the tax-free component. This requirement is known as the proportioning rule.


Your annual statement from your super fund will normally indicate both the tax-free and taxable components of your super account. If not, contact your fund and they will be able to work it out for you.

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Super tip: Ensure your super fund holds your Tax File Number (TFN). Otherwise it will be required to withhold 47% when it pays you the taxable component of your lump sum or income stream.


What is the low-rate threshold or cap?

When you withdraw your super benefits as a lump sum before you reach age 60, you can take a set amount of your benefit tax free. This amount is indexed each year and is called the low-rate threshold or cap.

The low-rate cap is the limit on the amount of taxable components (both taxed and untaxed elements) of a lump sum that can receive a lower (or nil) rate of tax. It applies to people who have reached their preservation age but are still aged under 60.

In 2020/21, the low-rate cap is $215,000.

The low-rate cap is a lifetime limit, which means it is the total amount you can take over your lifetime, even if you make several withdrawals. Any amount over the low-rate threshold is taxed at 17% (including the Medicare levy) or your marginal tax rate, whichever is lower.


Need to know: When choosing whether to take a lump sum or income stream from your super account, consider getting professional advice from an independent financial adviser or tax professional.

Tax and super are very complicated and taking a lump sum may not necessarily be the best strategy for you, as there can be tax advantages with a retirement income stream.


What are the tax implications of withdrawing at different ages?

1. Under your preservation age

If you withdraw some of your super benefit before you reach your preservation age, you will pay tax on your super savings whether you take a lump sum or choose an income stream.

On the other hand, if you wait until you are age 60, your withdrawal will be tax free. (Different rates apply to untaxed funds, such as government super funds.)

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If you are under your preservation age, no tax is payable on the tax-free component of your super if you withdraw it as a lump sum or receive an account-based income stream.

When it comes to the taxable component of your payment, it will be taxed* as follows:

Withdrawal UNDER your preservation age

Type of superType of withdrawalEffective tax rate (including Medicare levy)
Taxable component – taxed elementIncome streamYour 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 elementLump sumYour marginal tax rate or 22%, whichever is lower
Taxable component – untaxed elementIncome streamYour marginal tax rate
Taxable component – untaxed elementLump sumYour marginal tax rate or 32%, whichever is lower – unless the lump sum is more than the untaxed plan cap (see box below)

Note: Other tax rates may apply if you access your super due to a terminal medical condition, permanent incapacity, you are a temporary resident leaving Australia permanently, or if it is a super death benefit.

Source: ATO website.


Good to know: The untaxed plan cap amount is the maximum amount of untaxed elements in a super benefit that can take advantage of the concessional tax rates applying to super withdrawals. Any amount over the untaxed plan cap is taxed at the top marginal tax rate.

If you receive a lump sum from several super funds, the untaxed plan cap applies to the amount from each super fund. In 2020/21 the untaxed plan cap is $1.565 million.


Case study 1

When she was diagnosed with a serious illness, 51-year-old Yuki applied to her super fund to withdraw some of her super as she needed additional funds to help pay for her medical care.

Her super fund agrees to pay her a lump sum of $15,000, of which $2,000 is tax free. The remaining $13,000 is a taxable component with no untaxed element.

At tax time, Yuki includes the $13,000 in taxable super with her income for the year. She pays tax on the $13,000 at her marginal tax rate or at 22%, whichever is lower.


2. Over your preservation age but under 60

If you withdraw some of your super benefit under age 60 but after your preservation age (55 to 59 depending on your date of birth), you will pay tax on some elements whether you take the money as a lump sum or an income stream.

You do not pay tax on the tax-free component if you withdraw it as a lump sum or receive an account-based income stream.


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The taxable component of your super benefit is taxed as follows:

Withdrawal OVER your preservation age but UNDER age 60

Type of superWithdrawal typeEffective tax rate – including Medicare levy and up to the low-rate cap*Effective tax rate – including Medicare levy and above the low-rate cap*
Taxable component – taxed elementIncome streamYour marginal tax rate less 15% tax offsetYour marginal tax rate less 15% tax offset
Taxable component – taxed elementLump sum0%Your marginal tax rate or 17%, whichever is lower
Taxable component – untaxed elementIncome streamYour marginal tax rateYour marginal tax rate
Taxable component – untaxed elementLump sumYour marginal tax rate or 17%, whichever is lowerYour marginal tax rate or 32%, whichever is lower – unless the lump sum is more than the untaxed plan cap ($1.565 million in 2020/21). In this case the amount above the cap is taxed at the top marginal rate

* Low-rate cap is $215,000 in 2020/21

Source: ATO website


Case study 2

When he retired in January 2020 at age 58, Sando applied to his super fund to access his super benefit of $450,000. The super fund notified him that his super benefit consisted of a $150,000 tax-free component (which was all taxed in the fund) and a $300,000 taxable component.

When lodging his 2019/20 income tax return, Sando is only taxed on the $300,000 taxable component, as the remaining $150,000 is tax free.

Sando paid tax on the taxable component – taxed element of his lump sum. He paid 0% on the amount up to the low-rate cap (in 2019/20 the first $210,000 of his benefit) and 17% on the $90,000 over the cap.


Withdrawing from an untaxed defined benefit fund: Tax implications

Defined benefit super funds are usually large corporate or government employer super funds and the tax rules for these funds are generally the same as for other types of super funds.

Different tax rates apply, however, if you are a member of an untaxed defined benefit scheme or constitutionally protected fund (CPF), which are mainly public sector schemes.

The majority of super funds are taxed super funds, meaning the fund has paid tax on behalf of their members. Untaxed funds or CPFs, however, do not pay tax on contributions or earnings until the member leaves the fund.


Need to know: Calculating the tax applying to the withdrawal of super benefits from an untaxed defined benefit super fund is very complex and you should contact your super fund, an experienced tax accountant or an independent financial adviser for advice before applying to withdraw your benefit.


The following tax rates apply when withdrawing benefits from an untaxed super fund or constitutionally protected funds:

Withdrawal UNDER your preservation age

  • No tax payable on the tax-free component of either a lump sum or income stream payments.
  • 30% tax plus Medicare levy payable on the taxable component of a lump sum up to the untaxed plan cap ($1.565 million for 2020/21) and 45% plus Medicare levy over the cap.
  • Marginal tax rate plus Medicare levy on the taxable component of a super pension.

Withdrawal OVER your preservation age but UNDER age 60

  • No tax payable on the tax-free component of either a lump sum or income stream payment.
  • 15% tax plus Medicare levy payable on the taxable component of a lump sum up to the low-rate cap of $215,000 (2020/21), and 30% plus Medicare levy on the amount over the low-rate cap but under the untaxed plan cap of $1.565 million (2020/21). Rate of 45% plus Medicare levy for any amount over the untaxed plan cap.
  • Marginal tax rate plus Medicare levy on the taxable component of a super pension.

Withdrawals by temporary residents: Tax implications

If you have worked in Australia as a temporary resident and apply for a Departing Australian Superannuation Payment (DASP), you may have to pay tax on your super benefit.

For more information see SuperGuide article Early release of super through the Departing Australia Superannuation Payment (DASP).

Tax time: Filling in your tax return

When tax time rolls around, you need to include details of your benefit payment in your annual tax return:

1. Under preservation age

If you are under your preservation age, you will receive a payment summary from your super fund showing how much of the super benefit you received during the year is taxable and how much is tax free. It will also note any tax withheld from your super benefit and any tax offsets on the taxed element of your benefit.

To complete your tax return, you need to include the taxable component of your super benefit with your assessable income for the year. If you received an income stream, include the tax offset for the income stream in the offset section of your tax return. The ATO will calculate any offsets applying to super lump sums.

2. Over preservation age and under 60

If you are over your preservation age but under age 60, you will receive a payment summary from your super fund showing the taxable and tax-free amounts in any super benefit you received during the year. It will also show how much tax was withheld from the super benefit and any tax offsets applying to the taxed element.

Want to learn tax-friendly super strategies?

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Learn more about accessing super early in the following SuperGuide articles:

Early release of super due to severe financial hardship

April 4, 2020

Early release of super on compassionate grounds

April 1, 2020

Early release of super through DASP (Departing Australia Superannuation Payment)

March 8, 2019

Learn more about super and tax in the following SuperGuide articles:

Super for beginners: How superannuation is taxed

December 3, 2020

How the Division 293 tax works: Super surcharge for high earners

September 1, 2020

Your tax guide to accessing your super over age 60

July 16, 2020

How do tax-deductible superannuation contributions work?

February 1, 2020

Proportioning rule and super tax: What it is and why it matters

July 12, 2019

A simple guide to what tax is payable on super death benefits

July 12, 2019

SMSFs and capital gains tax (CGT)

April 5, 2019

The definitive SMSF guide to franked dividends

April 2, 2019

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