What you need to know about super and tax
Superannuation benefits are made up of two components, taxable and tax-free.
The taxable component is made up of:
- Employer contributions
- Salary sacrificed contributions
- Contributions by self-employed persons where a tax deduction was claimed
The tax-free component is made up of:
For people aged 55 to 59 no tax is payable on the tax-free component of your income payment. The taxable component of your income payment will be added to your taxable income. It will be taxed at your marginal tax rate, less a tax offset equal to 15 per cent of the taxable portion of the payment.
For people aged 60 and over benefits from a taxed super fund (i.e. most super funds) are tax-free.
Transition to retirement income streams – A transition to retirement income stream is a pension bought with super money while you are still working. You must have reached your preservation age, are restricted to withdrawing a maximum of 10% of the balance each financial year and are not allowed to withdraw lump sums.
These restrictions do not affect the tax treatment of the money you take out. The tax is the same as retirement income streams purchased with super money (55 to 59/60+).
Income streams from defined benefit super funds – Defined benefit income streams usually come from an employer super fund or a government employee super scheme. Calculating the tax-free portion of a defined benefit income stream is very complex. However, before you’re eligible for your benefit, your fund will send you a statement which will set out exactly how much is taxable and how much is tax-free.
Non-super income streams – An annuity is an income stream purchased with money outside the super system. It will pay you a fixed income for a defined period of time, regardless of how the markets are performing. Income from annuities, less a deductible amount, will be taxed at your marginal tax rate. The deductible amount represents the amount of your original capital that is being returned to you with each pension payment.
There are specific tax and superannuation issues you should consider if you are over 55. Those issues may vary depending on whether or not you are still working, planning to retire, about to make the transition into retirement or already retired.
Several tax offsets are available to mature-age workers, seniors and pensioners to help reduce the amount of tax payable. Eligibility conditions apply.
If you are planning to retire, you need to consider how super benefits are taxed. You should also think about what concessions are available if you sell your business assets to fund your retirement. Also, special rules apply if you receive payments for early retirement, redundancy or your employment was terminated. If you have already retired, you may be eligible for tax concessions or offsets.