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- Concessional contributions cap
- Non-concessional contributions cap
- Superannuation guarantee (SG)
- Division 293 tax
- Super co-contribution
- Tax offset for super contributions on behalf of your spouse
- Low-income super tax offset (LISTO)
- Downsizer contribution to super
- First Home Super Saver Scheme (FHSSS)
- Capital gains tax (CGT) cap
- Low-rate cap
- Untaxed plan cap
- Minimum pension payments
- Preservation age
- Tax on super lump sums
- Transfer balance cap
- Income tax rates, levies and offsets
- Age Pension rates and thresholds
Superannuation is widely regarded as the most tax-effective vehicle for retirement savings, but tax effective is far from tax simple.
In this article, we summarise the eye-glazing range of tax rates and thresholds that can affect the amount of tax you pay on your super savings both in the accumulation phase (while you are working) and retirement phase (when you withdraw your money).
Concessional contributions cap
Concessional contributions are before-tax contributions made into your super fund from a number of potential sources. They may come from your employer (such as the 9.5% superannuation guarantee), salary-sacrifice arrangements with your employer or tax-deductible personal contributions. These contributions are taxed at 15% as they enter your super fund. (High income earners may pay more – see Division 293 tax below).
The concessional contributions cap is a limit on the amount of pre-tax contributions you can make in a financial year. Any contributions above this cap will incur additional tax. The concessional contributions cap for 2020/21 is $25,000.
However, under the new carry-forward rule you may be able to exceed the annual limit. If you have a total super balance of less than $500,000 you can accumulate any unused portion of the current $25,000 concessional contributions cap for up to five years and use this to make additional super contributions.
If you exceed the current $25,000 cap (and you aren’t eligible to use the carry-forward rule), your excess contributions are added to your taxable income and you’ll pay tax on them at your marginal rate.
You’ll also be charged an excess concessional contributions (ECC) charge based on your additional tax liability plus compound interest. The ECC charge rate is adjusted each quarter to reflect market conditions and was 3.89% for the 2020 June quarter.
Non-concessional contributions cap
Any contributions you make to your super fund from your after-tax income are called non-concessional contributions. The annual non-concessional contributions cap for the 2020/21 financial year is $100,000.
If you’re aged under 65, you can bring forward up to $300,000 of non-concessional contributions in any three-year period.
However, if you’re aged between 65 and 74 you can still make voluntary super contributions in the first year after you retire without satisfying the work test, provided you have less than $300,000 in your super account at the end of the previous financial year.
Superannuation guarantee (SG)
The superannuation guarantee is the official term for compulsory super contributions made by employers on behalf of their employees.
The superannuation guarantee amount is currently 9.5% of an employee’s ordinary time wages or salary. This rate is scheduled to progressively increase to 12% by July 2025, as outlined in the table below.
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Financial year | Super guarantee rate |
---|---|
1 July 2021 – 30 June 2022 | 10% |
1 July 2022 – 30 June 2023 | 10.5% |
1 July 2023 – 30 June 2024 | 11% |
1 July 2024 – 30 June 2025 | 11.5% |
1 July 2025 – 30 June 2026 | 12% |
Source: Australian Taxation Office
To ensure the superannuation system is fair, the government also places a limit on SG payments by an employer on behalf of an employee. This is known as the maximum superannuation contribution base. An employer doesn’t have to pay the superannuation guarantee on employee earnings above this base limit, currently set at $57,090 for the 2020/21 financial year.
Division 293 tax
If your combined income and concessional super contributions exceed $250,000 you pay an additional 15% tax on concessional contributions, known as Division 293 tax. This tax is levied on the excess over the $250,000 threshold, or on your super contributions, whichever is less.
Super co-contribution
In order to encourage low- to middle-income earners to boost their retirement savings, the government offers a super co-contribution. If your annual income is below the lower income threshold outlined in the table below, the government will match any (after-tax) super contributions you make during the financial year up to a maximum co-contribution of $500. The co-contribution phases out once your income reaches the upper threshold.
Financial year | Maximum co-contribution entitlement | Lower income threshold | Higher income threshold |
---|---|---|---|
2020/21 | $500 | $38,837 | $54,837 |
Source: Australian Taxation Office
You don’t have to apply to the ATO for the super co-contribution. If you’re eligible, it will be paid to your super fund automatically.
Tax offset for super contributions on behalf of your spouse
If your (married or de facto) spouse is earning a low income or not working and you make contributions to their super on their behalf, you may be eligible for a tax offset of $540 a year, provided you meet the following criteria:
- The combined total of your spouse’s assessable income, reportable employer super contributions and total reportable fringe benefits is less than $37,000. (You’ll be entitled to a partial tax offset if your spouse earns between $37,000 and $40,000.)
- Both you and your spouse must have been Australian residents and living together when the contributions were made.
- Your spouse must not have exceeded their non-concessional contributions cap for the financial year, nor exceeded their transfer balance cap.
From 1 July 2020, the age limit for the spouse receiving the super contributions increased from 69 to 74, provided they meet the work test from age 67.
Low-income super tax offset (LISTO)
The low-income superannuation tax offset (LISTO) was formerly known as the low-income superannuation contribution (LISC). It’s designed to ensure low-income earners don’t pay more tax on their super contributions than they do on their take-home pay.
Eligible low-income earners with an adjusted taxable income of $37,000 or less receive a LISTO contribution to their super fund of 15% of their total concessional super contributions, capped at $500. (Adjusted taxable income includes taxable income plus any tax offsets for dependants and any government benefits received.)
You don’t have to apply to the ATO for the LISTO. If you’re eligible, it will be paid to your super fund automatically.
Downsizer contribution to super
Older Australians who want to downsize their family home to free up cash for their retirement can put some of the sale proceeds into their super. You can make a downsizer contribution of up to $300,000 ($600,000 for couples) into your super provided that:
- You’re over the age of 65
- You (or your spouse) owned your home for at least 10 years
- You make the contributions within 90 days of receiving the sale proceeds
- You complete a Downsizer contribution into super form that’s available from the ATO’s website.
It’s important to understand that you can only make a downsizer contribution from the sale of one home. Downsizer contributions are not classed as concessional or non-concessional contributions and therefore are not included in your annual contributions caps.
However, they do count towards your transfer balance cap. This is the amount you can transfer from your accumulation account into your retirement account, which is currently $1.6 million.
Downsizer contributions are not tax deductible and are included in determining your eligibility for the Age Pension.
First Home Super Saver Scheme (FHSSS)
The FHSSS allows first home buyers to save towards a deposit in the tax-advantaged superannuation environment.
You can voluntarily contribute up to $15,000 in a financial year and then access these funds early for a deposit on your first home, up to a maximum of $30,000. Any FHSSS contributions must be within your annual concessional and non-concessional caps.
Capital gains tax (CGT) cap
The CGT cap allows small business owners to make non-concessional super contributions from the sale of business assets without them counting towards their non-concessional contributions cap, up to a lifetime limit.
The lifetime CGT cap amount is $1,565,000 for the 2020/21 financial year.
Low-rate cap
If you reach your preservation age and withdraw super before turning 60, you pay tax on the taxable components of your payments. The low-rate cap is a limit on the amount that can be taxed at the concessional super rate of 15%.
The low-rate cap amount for the 2020/21 financial year is $215,000.
Untaxed plan cap
The untaxed plan cap applies to members of defined benefits super funds who have not been subject to the 15% contributions tax. The cap limits the concessional tax treatment of these benefits.
The untaxed plan cap amount for the 2020/21 financial year is $1,565,000.
Minimum pension payments
When you retire and start living off your superannuation savings in a super pension or annuity, a minimum amount must be withdrawn each financial year. The payment rate is a percentage of your account balance and depends on your age, as shown in the following table.
Note
On 22 March 2020 the federal government announced that the minimum pension drawdown rates would be halved for the 2019/20 and 2020/21 financial years. The rates below show the temporary rates for 2019/20 and 2020/21, and the normal rates for preceding years.
Age of beneficiary | Temporary percentage factor (2019/20 and 2020/21) | Normal percentage factor (2013/14 to 2018/19) |
---|---|---|
Under 65 | 2% | 4% |
65 to 74 | 2.5% | 5% |
75 to 79 | 3% | 6% |
80 to 84 | 3.5% | 7% |
85 to 89 | 4.5% | 9% |
90 to 94 | 5.5% | 11% |
95 or more | 7% | 14% |
Source: SIS Act
There is no maximum pension payment. You can withdraw a lump sum or receive the balance of your super account if you choose, unless it is a transition-to-retirement pension that is not in the retirement phase. In that case, you are limited to receiving a maximum of 10% of your account balance each year.
Preservation age
Your superannuation is ‘preserved’– that is, it can’t be touched – until you reach your preservation age. This is the minimum age that you can legally withdraw your super benefits, once you have met a condition of release.
Your preservation age depends on your date of birth, as indicated in the table below.
Date of birth | Preservation age |
---|---|
Before 1 July 1960 | 55 |
1 July 1960 – 30 June 1961 | 56 |
1 July 1961 – 30 June 1962 | 57 |
1 July 1962 – 30 June 1963 | 58 |
1 July 1963 – 30 June 1964 | 59 |
From 1 July 1964 | 60 |
Source: Australian Taxation Office
Tax on super lump sums
If you receive a lump sum payment from your super, you may or may not pay tax, depending on various factors summarised in the table below.
Lump sum component | Age when lump sum received | Amount subject to tax | Maximum rate of tax (excluding Medicare levy) |
---|---|---|---|
Member benefit with a taxable component – the taxed element | Under the preservation age | The whole amount | 20% |
At or above preservation age but under the age of 60 | Up to the low rate cap amount | Nil | |
Above the low rate cap amount | 15% | ||
Over the age of 60 | Nil | N/A | |
Member benefit with a taxable component – the untaxed element | Under the preservation age | Up to the untaxed plan cap amount | 30% |
Above the untaxed plan cap amount | 45% | ||
At or above preservation age but under the age of 60 | Up to the low rate cap amount | 15% | |
Above the low rate cap amount and up to the untaxed plan cap amount | 30% | ||
Above the untaxed plan cap amount | 45% | ||
Over the age of 60 | Up to the untaxed plan cap amount | 15% | |
Above the untaxed plan cap amount | 45% | ||
Death benefit lump sum paid to non-dependants with a taxable component – taxed element | Any | The whole amount | 15% |
Death benefit lump sum paid to non-dependants with a taxable component – the untaxed element | Any | The whole amount | 30% |
Death benefit lump sum paid to dependants with a taxable component – taxed and untaxed elements | Any | Nil | N/A |
Rollover super benefits with a taxable component – the taxed element | Any | Nil | N/A |
Rollover super benefits with a taxable component – the untaxed element | Any | Nil up to the untaxed plan cap amount | N/A |
Any | Above the untaxed plan cap amount | 45% | |
Super lump sum benefits less than $200 | Any | Nil | N/A |
Super lump sum benefits for terminally ill recipients | Any | Nil | N/A |
Source: Australian Taxation Office
Transfer balance cap
When you retire and shift your super into the tax-free retirement phase of your super fund from your accumulation account, there is a cap on the maximum amount you can transfer. The current transfer balance cap is $1.6 million.
Income tax rates, levies and offsets
Information on Australia’s current income tax rates, levies and offsets, including those affecting retirees, is available below:
Age Pension rates and thresholds
- Discover the current Age Pension rates
- Learn about the Age Pension income test limits
- Learn about the Age Pension assets test limits
The information contained in this article is general in nature.
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