Superannuation has its own tax rules covering money going into the fund, investment earnings while the money is invested and benefits paid out later. The exact treatment depends on the type of contribution, your income, age and fund.
How Are Concessional Contributions Taxed?
Employer contributions, salary sacrifice and eligible personal deductible contributions are generally concessional contributions and are typically taxed within super, subject to additional rules for some higher-income earners.
How Are Non-Concessional Contributions Taxed?
Non-concessional contributions are generally made from after-tax money and are not normally taxed again as contributions, subject to the contribution rules and caps.
How Are Investment Earnings Taxed?
Investment earnings in accumulation phase are generally taxed within the super environment. Different tax treatment can apply to earnings supporting a qualifying retirement-phase pension.
How Are Withdrawals Taxed?
The tax treatment of withdrawals depends on age, fund type, and whether the payment isa lump sum or income stream. In many cases, individuals aged 60 or over receiving benefits from a taxed superannuation fund pay no personal tax on those benefits. However, exceptions may apply depending on individual circumstances, so it is important to take specific advice.
Moneysmart provides an overview of retirement income and tax.
Why Do Contribution Caps Matter?
Exceeding contribution caps can create extra tax and administrative consequences. Check your contribution history before making large additional contributions.
What are the tax consequences of paying insurance premiums from my super?
Many Australians pay their personal insurance (life, total and permanent disable mentor TPD, and income protection) from their super account. It assists with cashflow. The payment of premiums generally reduces the tax payable in your super account in the accumulation phase. However, there can be tax consequences when insurance benefits are paid, depending on the type of cover, the recipient and their circumstances.The advantages and disadvantages of holding insurance within superannuation are complex, so obtaining financial advice is important.
Tax Is Only One Part of the Super Decision
At Setch Group, super tax is considered alongside access, investment strategy, contribution caps, cash flow and retirement goals.
If you want to understand how your super fits within your overall financial strategy, complete the Setch Group Financial Healthcheck.
Frequently Asked Questions
Is super tax-free?
No. Different taxes can apply at different stages, although some retirement benefits may be tax-free depending on circumstances.
Are salary-sacrifice contributions taxed?
They are generally taxed as concessional contributions within super.
Do super tax rules change?
Yes. Check current ATO rules before making significant decisions.
This article contains general information only and is not financial advice.
