How is Super Taxed
Super is taxed at a much lower rate than most other investments when compared to your marginal tax rate.
You have to pay tax on super when:
- certain contributions are made (see below)
- your superannuation account earns investment returns you withdraw money from super before age 60 (from age 60 it’s generally tax-free).
- you don’t provide your Tax File Number (TFN) to your super fund. This is called ‘No-TFN tax’.
Tax on contributions and earnings is paid by the fund.
Be aware that taxation and social security laws are very complex and can change regularly.
Tax on money entering your super account
This refers to tax on contributions being made to your super account.
A contributions tax of 15% is applied to contributions made by your employer and from your pre-tax salary. Any insurance premiums are deducted from the contributions before the 15% is applied. Additional tax applies if contributions are over the concessional contributions cap (see excess contributions tax below)
After-tax contributions or contributions made for you by your spouse are not taxed as long as they are below the non-concessional contributions cap (see excess contributions tax below).
In some cases, you may be entitled to a tax deduction or tax offset. Contributions tax still applies where a tax deduction is claimed on contributions.
There is additional tax, called excess contributions tax, that will be charged if you contribute funds over the concessional or non-concessional contribution caps. The additional tax you pay on amounts above the concessional contributions cap is 31.5%. The tax you pay on amounts above the non-concessional contributions cap is 46.5%. If you are under age 65 you can bring forward three years worth of non-concessional contributions in any one year without incurring the tax.
Tax on the earnings of money invested in your super account
A maximum of 15% tax on income, and 10% on capital gains, is charged on the earnings of your super fund investments, while earnings outside of super are taxed at your top marginal tax rate.
Tax on money withdrawn from your super
This refers to tax on benefits paid from your super account.
If you transfer your super to another super fund, you usually do not have to pay tax.
If you take your money as a lump sum, then you are generally subject to a lump sum tax if you are under age 60.
The tax you pay on lump sums withdrawn under age 60 will depend on the amount and the components of the payment (tax-free and/or taxable).
If you transfer your money into an annuity or receive it as a pension, you can reduce the amount of tax you pay.
Super is tax free if withdrawn on or after age 60 from a taxed super fund.
For the 2011/2012 financial year the following tax rates apply to lump-sum benefits paid to a member from a taxed super fund:
* Add Medicare levy
Different tax rules apply to super income streams and death benefits.
Tax for not providing your Tax File Number (TFN) to your super fund: ‘No-TFN tax’
A tax of 31.5% applies to concessional contributions if you have not provided your TFN to your superannuation fund.
This tax is generally deducted at the earlier of 30 June each year or when you leave your super fund.
This tax can be refunded if you supply your TFN to your super fund within four financial years of making the contribution.
Also, if you don’t provide your TFN to your fund, they cannot accept member or spouse contributions.
At a glance
- It pays to understand the taxes charged on your super.
- Taxes should be compared against your marginal tax rate.
