How superannuation is taxed: Super for beginners guide

Superannuation in Australia has its critics for, among other things, its fees, complexity and constant government tinkering with the rules. Yet even the critics would agree that super remains the most tax-effective investment vehicle for your retirement savings.

And deliberately so. The relatively light taxation of super is the carrot the government uses to encourage Australians to lock their savings away for three decades or more during their working lives. The combination of concessional tax rates, time and compound interest is what makes super such a powerful vehicle to grow your retirement savings.

The system is designed to:

• Have lower (concessional) tax rates for contributions you and your employer make into your super fund and earnings on investments inside your fund
• Generally provide you with tax-free withdrawals in retirement (once you reach your preservation age and meet a condition of release).

Super can only be accessed early (prior to your preservation age) in specific circumstances (such as if you face severe financial hardship, become permanently disabled or are diagnosed with a terminal illness).

While the taxation of super is attractive, it is also complex. That’s why it’s generally worthwhile seeking independent professional advice based on your personal circumstances. However, it’s still important to have a general understanding of how super is taxed in Australia to guide your decision-making and savings strategies. This article explains in broad terms the key principles.

How super is taxed at different stages