Depending on your personal situation, there are two stages when tax might need to be paid on your super savings:
Once you’ve met a condition of release under government legislation*, you can convert your super to an income stream or withdraw lump sum amounts. Such conditions of release include reaching your preservation age and retiring; or turning 65 years of age.
Any earnings on your super savings are taxed at a maximum rate of 15%. Your fund pays this tax to the Australian Tax Office (ATO) for you.
Depending on your cash-flow requirements and product choice, you may choose to convert your super savings to one or more of the following income streams:
*Schedule 1, Superannuation Industry (Supervision) Regulations 1994
You might need to pay tax on your super income stream or lump sum withdrawals you make. The amount of tax you pay will depend on a number of factors, including:
Generally, your superannuation benefit will comprise both tax-free and taxable components. Your fund can tell you your tax components, but this is broadly how it works:
These are generally non-concessional contributions (e.g. personal contributions where no tax deduction is claimed, spouse contributions); and the 30 June 2007 value of some other after tax contributions you may have made before 1 July 2007. For more details, visit the ATO website.
Your taxable component may consist of a taxed or an untaxed element. It will depend on whether your superannuation benefit is paid from a taxed source (e.g. Colonial First State allocated pension) or untaxed source (e.g. public sector funds for Commonwealth, State and Territory government departments and most government super schemes); and/or whether your benefit includes any life insurance proceeds.
If you’re aged 60 or over, you usually won’t have to pay any tax on your super income stream or lump sum withdrawal.
If you’re under age 60 – but have reached your preservation age – only the taxable component of your income stream is taxable at your marginal tax rate2 .
However, you’re entitled to a 15% tax offset on this. And you don’t pay tax on the first $215,0003 of lump sum withdrawals.
Natalia is approaching retirement, and has reached her preservation age of 59. She has a super balance of $300,000.
Her balance includes $30,000 which she contributed as non-concessional (after-tax) contributions; with $270,000 made up of employer contributions and earnings.
This means that Natalia’s super will comprise a 10% tax-free component and a 90% taxable component.
How tax is applied
Natalia sets up an account-based pension through Colonial First State, and chooses to receive $10,000 in total income payments throughout the year. Of this amount, $1,000 (10%) will be tax-free, while $9,000 (90%) is taxable.
In Natalia’s case, 10% of each pension payment she receives will be tax-free. She may have to pay tax on the remaining 90% of each payment. Whether she does will depend on what other taxable income she receives, and her marginal tax rate (because she’s under 60).
A 15% tax offset entitlement
Because Natalia has already reached her preservation age, she’ll also receive a 15% tax offset ($1,350) to reduce any tax she does pay on the $9,000.
Once Natalia reaches age 60, she won’t have to pay tax on any of her account-based pension payments.
If you’ve reached Age Pension age, you may be eligible for the Seniors And Pensioners Tax Offset (SAPTO). Under this government scheme, you can reduce the amount of tax you’re liable to pay.
This could be helpful if you’re earning income from part-time work or investments.
Depending on your circumstances, your Age Pension might also be taxable, and SAPTO might reduce the amount you need to pay.
You’ll need to be at least age 66, and meet various eligibility requirements. In some cases, your tax payable may be reduced to zero, with no obligation to lodge an annual tax return.
Find out more about SAPTO eligibility requirements.
You’ll find plenty of detailed information for seniors and retirees at the Australian Taxation Office website. However, taxation can be a complex area – so it’s a good idea to consult a financial adviser or tax specialist.
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If you’d like to find out more, a good place to start is at the government’s Moneysmart website.
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Avanteos Investments Limited ABN 20 096 259 979, AFSL 245531 (AIL) is the trustee of the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557 and issuer of FirstChoice range of super and pension products. Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (CFSIL) is the responsible entity and issuer of products made available under FirstChoice Investments and FirstChoice Wholesale Investments.
Information on this webpage is provided by AIL and CFSIL. It may include general advice but does not consider your individual objectives, financial situation, needs or tax circumstances. You can find the target market determinations (TMD) for our financial products at https://www.cfs.com.au/tmd which include a description of who a financial product might suit. You should read the relevant Product Disclosure Statement (PDS) and Financial Services Guide (FSG) carefully, assess whether the information is appropriate for you, and consider talking to a financial adviser before making an investment decision. You can get the PDS and FSG at www.cfs.com.au or by calling us on 13 13 36.