How much tax you pay on your super contributions and withdrawals depends on:
your total super amount
the type of contribution or withdrawal you make
If you inherit someone’s super after they die, the person’s super fund pays you a super death benefit. You may have to pay tax on some of this benefit.
Because everyone’s situation is different, it’s always best to get advice about tax matters. Contact the Australian Taxation Office (ATO).
How super contributions are taxed
Money paid into your super account by your employer is taxed at 15%. So are salary-sacrificed contributions, also known as consessional contributions.
There are some exceptions to this rule:
If you earn $37,000 or less, the tax is paid back into your super account through the low-income super tax offset (LISTO).
If your income and super contributions combined are more than $250,000, you pay Division 293 tax an extra 15%.
If you make contributions from your after-tax income — known as non-concessional contributions — you don’t pay any contributions tax.
See tax on contributions on the ATO website for more information about how much tax you’ll pay on super contributions.
To avoid paying extra tax on your super, make sure you give your super fund your Tax File Number.
How super investment earnings are taxed
Earnings on investments within your super fund are taxed at 15%. This includes interest and dividends, less any tax deductions or credits.
See super investment options to find out more.
How super withdrawals are taxed
The amount of tax you pay depends on whether you withdraw your super as:
a super income stream, or
a lump sum
Everyone’s financial situation is unique, especially when it comes to tax. Make an informed decision. We recommend you get financial advice before you decide to withdraw your super.
Super income stream
A super income stream is when you withdraw your money as small regular payments over a long period of time.
If you’re aged 60 or over, this income is usually tax-free.
If you’re under 60, you may pay tax on your super income stream.
Lump sum withdrawals
If you’re aged 60 or over and withdraw a lump sum:
You don’t pay any tax when you withdraw from a taxed super fund.
You may pay tax if you withdraw from an untaxed super fund, such as a public sector fund.
If you’re under age 60 and withdraw a lump sum:
You don’t pay tax if you withdraw up to the ‘low rate threshold’, currently $225,000.
If you withdraw an amount above the low rate threshold, you pay 17% tax (including the Medicare levy) or your marginal tax rate, whichever is lower.
If you have not yet reached your preservation age:
You pay 22% (including the Medicare levy) or your marginal tax rate, whichever is lower.
See the super lump sum tax table on the ATO website for more detailed information.
When someone dies
When someone dies, their super is usually paid to their beneficiary. This is called a super death benefit.
If you’re a beneficiary, the amount of tax you pay on a death benefit depends on:
the tax-free and taxable components of the super
whether you’re a dependent for tax purposes
whether you take the benefit as an income stream or a lump sum
See super death benefits on the ATO website for more detailed information or to speak to us about your super, call us on (02) 8277 4605.
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/how-super-works/tax-and-super
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