The superannuation system is designed to help individuals save for retirement, offering a range of tax advantages to encourage saving. However, understanding the taxes on your super can be complex. This article aims to break down the key aspects of super taxation to help you navigate your retirement savings more effectively.

 Contributions

1. Concessional Contributions:

  • Tax Rate: 15%
  • Definition: Pre-tax contributions, including employer contributions (such as the 9.5% Superannuation Guarantee) and any amounts you contribute before tax (salary sacrifice).
  • Caps: As of the latest financial year, the cap on concessional contributions is $27,500 per year. Contributions above this cap are taxed at your marginal tax rate plus an excess concessional contributions charge.

2. Non-Concessional Contributions:

  • Tax Rate: 0%
  • Definition: Contributions made from your after-tax income for which you do not claim a tax deduction.
  • Caps: The cap is $110,000 per year, or up to $330,000 over three years under the bring-forward rule, depending on your total super balance and age.

 Earnings Inside Super

  • Tax Rate: 15% on investment earnings
  • Details: Investment earnings within your super fund are taxed at a concessional rate of 15%. This includes interest, dividends, and rental income generated by the fund’s investments.

 Capital Gains Inside Super

  • Tax Rate: 10% or 15%
  • Details: Capital gains from assets held for longer than 12 months receive a one-third discount, reducing the tax rate to 10%. Assets held for less than 12 months are taxed at the standard 15% rate on investment earnings.

 Withdrawals

1. Preservation Age to 59:

  • Tax Rate: Tax-free up to the low-rate cap ($225,000 for the 2021-22 financial year); taxable portion taxed at 17% including the Medicare Levy.
  • Details: Withdrawals within this age range are partially tax-free, depending on the component of the super (tax-free or taxable).

2. Age 60 and Over:

  • Tax Rate: Tax-free
  • Details: Withdrawals from a taxed super fund are tax-free for individuals aged 60 and over.

 Death Benefits

  • Tax Rate: Depends on the beneficiary
  • Details: If paid to dependents (as defined for super purposes), death benefits are tax-free. If paid to non-dependents, the taxable component is taxed up to 17%.

 Superannuation Tax Offsets and Rebates

  • Low Income Super Tax Offset (LISTO): Individuals earning up to $37,000 may receive a refund of the tax paid on their concessional contributions, up to $500.
  • Spouse Contributions Tax Offset: Contributing to your spouse’s super may entitle you to a tax offset of up to $540.