Super and Tax

NOTE: The 2010/11 and 2011/12 Federal Budgets proposed several changes to Australia’s superannuation system. Some of these measures are yet to pass legislation. NICRI will update this factsheet accordingly however it may be necessary to review the proposed changes before making any decisions. For more information, visit the websites www.ato.gov.au and www.budget.gov.au.

While your money is in super, fund income and certain contributions will be taxed. The amount of tax paid depends on the types of contributions you make and the taxation status of your super fund. This factsheet mainly focuses on taxation of super during the accumulation phase. NICRI has publications regarding income stream products and taxation. To order call us on 1800 020 110. 

Tax on Superannuation Fund Earnings

A complying super fund is one that receives concessional taxation status whereby income (including realised capital gains) within the fund are taxed at a maximum rate of 15% (note: imputation tax credits from investments in Australian shares may reduce this).

To be considered a complying super fund, the fund must abide by the Superannuation Industry Supervision (SIS) Act. The earnings of a non-complying super fund are taxed at the highest marginal tax rate (45%).

Tax on Contributions

There are two types of contributions, concessional and non-concessional, both of which are subject to a contributions cap. If you exceed these caps then tax will be levied against your superannuation account at the highest marginal tax rate (46.5% including Medicare levy for non concessional contributions and 31.5% for concessional in addition to the 15% paid by the fund). For more information on the types of contributions see the NICRI factsheet Contributions to Super. 

Concessional Contributions

When placed in a complying super fund or Retirement Savings Account (RSA), concessional contributions below the concessional contributions cap ($25 000 for people under 50 for 20010/11) are subject to a maximum tax rate of 15%. A non-indexed transitional cap of $50 000 applies until 30 June 2012 for people aged 50 or over.

If you exceed the cap, the amounts in excess will be taxed an additional 31.5% totalling 46.5% and are counted towards the non-concessional contributions cap.

Non-Concessional Contributions

Non-concessional contributions are subject to the non-concessional contributions cap of $150 000 for the 2010/11 financial year. This is calculated at 6 times the concessional contributions cap. Since tax has already been paid on these contributions, the super fund does not deduct tax on receipt of non-concessional contributions within the cap.

If you are under age 65 on 1 July, in that financial year you are able to bring forward three years worth of non-concessional contributions, giving a non-concessional cap of $450 000 for that financial year. If this consolidated cap is exceeded, amounts over the cap will attract tax at 46.5% (including Medicare levy).

This means that if a person exceeds the $150 000 cap in year one, they can use some or all of year two’s and year three’s cap before being subject to any penalty tax. If you use the consolidated three year cap in year one, you cannot make any more non-concessional contributions in the next two financial years.

Self-Employed or Unsupported Contributions

To be classified as ‘unsupported’ and to make ‘unsupported persons’ contributions to superannuation for taxation purposes a person must derive at least 90% of assessable income from non-wage or non-salary sources.

A self-employed person, a substantially self-employed person or an employee who receives less than 10% of their total assessable income, including exempt income and Reportable Fringe Benefits (RFBs), from employer salary support may claim a tax deduction for their contributions.

Spouse Contributions

To encourage contributions on behalf of a spouse, the Government offers a tax offset of up to $540 per annum on eligible spouse contributions. Spouse contributions are non-concessional contributions and are subject to the receiving spouse’s non-concessional contributions cap.

The maximum tax offset is available to the contributing spouse of a couple (including same-sex couples from    1 July 2009) who is  married or in a de-facto relationship and the partner for whom the contribution is made has income less than $10 800. Income used to assess eligibility for the tax offset includes assessable income and RFBs. From 1 July 2009 salary sacrifice contributions to superannuation are also included in the calculation of assessable income.

The spouse making the contribution will receive an 18% tax offset on contributions of up to $3 000 per annum. A partial offset applies if the receiving spouse’s income is more than $10 800 per year, reducing on a dollar basis until their income is $13 800 per annum.

Tax Deductions for Contributions

If an individual intends to claim a deduction for all or part of their contribution to superannuation, they must notify their fund before they lodge their tax return or before the end of the following financial year, whichever is the earlier, of their intention to claim a tax deduction. This notice cannot be varied after this time. Any excess above the concessional cap will count towards the non-concessional cap.

If a tax deduction is claimed, tax up to a maximum rate of 15% will be applied by the superannuation fund to the portion claimed as a tax deduction.

Tax on Withdrawals

This section will deal with tax on withdrawals from taxed super funds. For details regarding untaxed super funds such as Government Defined Benefit Schemes, call NICRI 1800 020 110 or refer to NICRI's A Super Guide. If you are not sure if you are a member of an untaxed super fund, the Australian Taxation Office (ATO) has a list on their website www.ato.gov.au or you can contact your fund. 

The tax exempt component comprises all non-concessional contributions, the Capital Gains Tax (CGT) exempt component and components previously known as the Pre 1 July 1983 component, the Post 30 June 1994 invalidity component and the Pre 1 July 1994 Concessional component (note: the last three components are rare).  

The taxable component is made up of everything that is not in the tax exempt component. Included in this component are all concessional contributions, the components previously known as the Post 30 June 1983 component and the non-qualifying component as well as earnings on all the components of the fund.  

The following table sets out how lump sum withdrawals from super are taxed. For information on taking a benefit out as an income stream, see NICRI's A Super Guide or call NICRI on 1800 020 110.  

Note:

•  Low rate cap (applicable to taxed super funds) is $160 000 for the 2010/11 financial year and $165 000 for the 2011/12 financial year.

•  For untaxed super funds the low rate cap is $1 155 000 for the 2010/11 financial year and $1 205 000 for the 2011/12 year. This amount refers to money withdrawn from untaxed super funds. For more details, contact NICRI 1800 020 110.

•  These caps are indexed annually when the indexation increase reaches $5 000 or more.

Download a copy of this factsheet Super and Tax