Super can have a significant impact on your tax status as well as your future. Here’s what you need to know to make the most of your situation.
How super is taxed
How much tax you pay on your superannuation contributions and benefits depends on many different factors including your income level and any additional contributions you make.
Employer and salary sacrificed contributions
Pre-tax, or concessional contributions, come from contributions from your employer as part of your superannuation guarantee (SG) or from a portion of your salary that you choose to have put into super before it’s counted against your income tax.
There are special rules that apply to people who earn $37,000 or less and people whose combined income exceeds $250,000.
Low income earners (<$37,000)
Tax you have paid on your super contributions, up to $500, will automatically be added back into your account through LISTO, the low income super tax offset scheme.
High income earners (>$250,000)
If your income (including fringe benefits) and concessional contributions exceeds $250,000 pa, you will pay Division 293 tax – an additional tax of up to 15% tax on your concessional contributions. For details, contact our financial advice team or your tax accountant.
Why you should have your TFN on file with your super fund
If you don’t have your Tax File Number (TFN) recorded by your fund, then your employer contributions and any other concessional (before-tax) contributions are subject to the top marginal tax rate, 47%. That’s 45% for income tax plus the 2% Medicare levy.
Also, without a TFN on file you won’t be able to make non-concessional (after-tax) contributions or participate in any co-contribution schemes or the Low Income Super Tax Offset (LISTO) scheme.
To avoid having to pay more tax on your super contributions than is absolutely necessary, you should have your Tax File Number recorded by your fund.
If you have not provided us with your TFN either login to your Members online account and update ‘Your Personal Details’ or download and complete the Tax file nomination form (PDF) and return to us as soon as possible.
If you provide us with your TFN within four years of joining the fund, we will be able to claim a refund for extra tax paid. Once we receive the refund, it will be credited to your super account provided that you are still a member.
While super is considered a tax-effective way to save for retirement, there are limits to the amount that you can contribute without incurring additional tax.
Concessional contribution limit
The maximum amount of pre-tax money you can put into your superannuation accounts through SG and salary sacrifice is $25,000 pa.
Non-concessional contribution limit
The maximum amount of post-tax money you can put into your super accounts in a single year is $100,000 however there is a 3-year bring-forward rule which means that you can ‘top up’ once every three years for a maximum amount of $300,000 without incurring additional tax.
Balance Transfer Cap
If your super balance is more than the balance transfer cap ($1.6M), then further contributions limits may apply.
How your investment earnings are taxed
Income earned through investments in super are taxed at a maximum rate of 15%. However, in practice, the tax rate may be lower when combined with tax off-sets and imputation credits. Further, capital gains earnings are generally taxed at only 10% if an asset is held for more than 12 months.
Income earned through investments in complying pension assets are not generally taxed.
If the fund suffers net capital losses in any year, the losses are carried forward until they can be offset against future capital gains. The future tax benefit is called a Deferred Tax Asset (DTA); if there is any DTA it will be included in unit prices.
How are lump sum benefits taxed?
If your super is being paid out in a lump sum, it’s divided into taxable and tax-free components. Generally, you’ll only have the tax-free component if you made after-tax contributions into your super.
The taxable amount depends on your age:
- Generally, if you’re 60 or older there is no tax charged.
- If you’re between the ages of 57 and 60, there’s generally no tax charged on the first $195,000 and the balance is taxed at 15% plus the Medicare levy.
- If you’re under 57, the whole amount is taxable by 20% plus the Medicare levy.
- If you’re a foreign national who is leaving Australia permanently, the taxable component will generally be taxed at 38%.
Rates can differ; to get answers to your particular situation, schedule a call with a financial adviser by calling 1300 658 776 or click here to learn more.
What is the tax on death benefits?
There is no tax on any tax-free component of your death benefit; however the treatment of the taxable component depends on who receives the benefit. Learn more how to nominate beneficiaries here.
Lump sum death benefits paid to your spouse, former spouse, child under 18, person with whom you have an interdependency relationship or financial dependants are tax-free.
The taxable component of a lump sum death benefit paid to a non-dependant like an adult child will be taxed at 15% plus the Medicare levy.
Individual circumstances may vary; contact us if you need details about your unique situation.