How is my income from super taxed?

Super benefits breakdown

Super benefits have two components: a tax-free component and a taxable component. Whether super benefits are taxed depends in large part on your age:

If you are retired and aged 60 or above:

The majority of retirees aged 60 and above who choose to access their super benefits, whether as a lump sum or by way of an income stream, will do so tax-free.

A few, who may have been public servants for all or part of their working lives, will owe tax because all or a portion of the taxable component of their benefits package contained an untaxed element on which tax still needs to be collected.

How these recipients will be taxed depends on how they chose to receive their super benefits payments:

  • Those who opted for a lump sum will see any amount up to the untaxed plan cap amount for the financial year – the cap is indexed every February. Any amount above the cap would be taxed at a higher rate, including the Medicare levy.
  • Those who picked an income stream would be taxed at marginal rates, with a 10% tax offset.
If you are at or above preservation age but under 60:

Super payees who have reached preservation age but are under the 60-year cap and chose to receive the payment as a lump sum would not be required to pay any tax unless the amount of the payment was above the low rate cap amount.

The low rate cap threshold is indexed every year. For the 2015-2016 term, it is set at $195,000.

Lump sum super payments above this amount will be taxed at a rate of 17%.

However, any portion of their total payment that contained an untaxed element would be taxed at 31.5% and any part of this untaxed segment that fell above the untaxed plan cap amount would see tax withheld at the maximum rate of 46.5%. Those who opted for a pension instead of a lump sum would see their super payments taxed at marginal rates with the possibility of getting a 15% tax offset. However, if some part of their super was made up of an untaxed element that portion would also be taxed at marginal rates but without the option of a tax offset.

If you have not reached preservation age:

The age at which you reach the so-called preservation age for super purposes has been gradually creeping up. If you were born before July 1960 it is 55, but for those born after July 1 of 1964, the preservation age is 60.

This means that you will have to have reached that age to start accessing your super benefits. Under preservation rules, super funds can be withdrawn before the preservation age only by meeting strenuous conditions of release such as a permanent disability.

In the rare or unfortunate case where early access to super is necessary and made available, the recipient should be prepared for a measure of tax sticker shock. As such, the whole amount of the already tax elements would be subject to a maximum rate of 21.5% on lump sum payments while any untaxed portion would suffer rates of 31.5 to 46.5% depending on whether the amount fell above or below the untaxed plan cap amount.

 

Read more here for the breakdown of super benefits.

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