12th Apr 2016
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Superannuation: how is it taxed?
couple working out tax on superannuation

Many of us accept that superannuation is a tax-effective means of saving for retirement, but fewer will understand just how our money is taxed within the system. This simple guide outlines the basics.

Before-tax contributions
Also known as concessional contributions, these include any payments that are made to your superannuation before tax. This includes the 9.5 per cent superannuation guarantee contribution made by your employer and any voluntary contributions they might make.

Salary sacrifice contributions, which have the effect of reducing your taxable income – possibly even putting you into a lower tax bracket, are also considered concessional contributions.

If you were aged 49 or older on 30 June 2015, then you can contribute up to $35,000 per annum (including compulsory employer contributions) to your superannuation before tax. These contributions are taxed at 15 per cent, which may be less than your marginal rate for income tax. Depending on how much you earn, salary sacrifice contributions can be an effective tax strategy. 

There are penalties for exceeding concessional contribution thresholds.

After-tax contributions
Of course, you can also make non-concessional contributions to your superannuation. These include any voluntary payments made from your take-home (after tax) salary, contributions for your spouse and any lump sum amounts, possibly from the sale of a house or an inheritance.

You can contribute up to $180,000 per annum after tax to your super and you will pay no tax on this amount. This is because you have already been taxed once on such income. If you exceed this cap in a financial year, and you’re under 65, you will trigger the ‘bring forward rule’ which is a three year period in which you can make up to $540,000 of non-concessional contributions. For instance, if you made a contribution of $250,000 in a financial year then you could make an additional $290,000 over the next two years. 

If you’re 65, the bring-forward rule doesn’t apply, and non-concessional contributions are subject to a work-test.

The Government co-contribution, should you qualify, is also classed as a non-concessional contribution, but it does not count towards the non-concessional cap.

Withdrawals from superannuation
If you’re over 60, and meet the requirements of being able to access your superannuation, then any money you withdraw is generally tax free. You can take such withdrawals as a lump sum or an income stream. While your personal circumstances will depend on which is more appropriate, an income stream can often be combined with a government Age Pension once you reach eligibility age.

If you are under 60, a portion, or a ‘component’ of your superannuation balance may be tax free. To find out how to calculate your tax-free component, visit ATO.gov.au. This may also appear on your superannuation statement.

The taxable component is subject to different rates of tax depending on your age and whether or not contributions were taxed or untaxed when paid into your superannuation.

While tax can be a complex subject, understanding the basics of how your superannuation is taxed can help you make decisions on how best to allocate your money. It’s important to get advice to ensure you’re making contributions in a way that maximises your tax savings without exceeding any caps or limits, so that you have the best chance to grow your savings and have more to enjoy when you retire.  

Make your super work harder for you. Visit australiansuper.com/56matters to get started.

This article has been sponsored by AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, the Trustee of AustralianSuper ABN 65 714 394 898. The article contains general information and you should consider if it is right for you. 





    COMMENTS

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    MICK
    13th Apr 2016
    8:54am
    The perfect tax avoidance vehicle for the rich. First there is the $35,000 component which brings tax payable down from 48% to 15%. Then there are the unlimited contributions where the rich can pay the right amount of tax on the contribution but PAY ONLY 15% ON EARNING ON THAT MONEY. So why would a rich person not set up a self managed superannuation account account, put their high incomes into it and then withdraw it lump sump on retirement. That way they have effectively been paying 15% tax on most of the fund's earning (for decades!!) and have a lower tax rate than people earning $50,000 a year.
    So why do you think I have been on about the SUperannuation Tax Shelter for the rich for years. This is a rort which only the rich can properly abuse as average income earners just do not have the money to avail themselves of it. AND THE FEDERAL GOVERNMENT CONTINUES TO SHELTER THE TAX AVOIDING RICH FROM THEIR RESPONSIBILITY TO PAY A SET AMOUNT OF TAX. Disgraceful. Vote for an Independent!!
    mangomick
    13th Apr 2016
    2:47pm
    I'm only a working stiff and I top up what my employer pays in to my Super to the full $35000.I do so by going without a lot of extra pleasures. I sure couldn't do it when I had kids at home though. I still pay nearly 40 grand a year in tax so it doesn't save me the $quillions that you imagine it does. The really wealthy dont need to worry about the lousy $35k cap that the Super system allows them to lower their tax. They have far more lucrative schemes than that. Like trust funds and a myriad of Tax write offs if they own a business. Might have been a bit different before when they could really bundle the money into Super though. Before the $35000 Cap was brought in. The $35k cap now really only assists middle class workers like me who if they put in enough will never see a pension cheque or concession card. . Anyone who tops up their Super only pay 15% on the difference between what the Company puts in and the $35000 Maximum cap.And that's only if they are over 49. They still pay their usual rate on the rest of their income.
    Bonny
    13th Apr 2016
    4:04pm
    Mick that extra tax the "rich" might not pay on the $35,000 is peanuts to what they pay on their income. I can't see a problem with only paying 15% on the money while it is in the super fund either. It takes lots of $35,000 to add up to a decent amount to get enough return on to live on.

    I thought also if you income was above a certain level you paid 30% tax on your super contribution not 15% too.

    As I have said before the real rich don't like super as it has too many conditions and they prefer to invest their money elsewhere. I don;t like super myself either. The rich are not stupid as well as rich.
    Tom Tank
    13th Apr 2016
    4:36pm
    Mangomick do you really believe that you are a middle class worker?
    $40,000 tax plus $35,000 into super plus whatever is left really puts you into a top level salary earner and not a working stiff as you claim.
    The average wage in Australia is $48,000 per year before tax.
    Gra
    13th Apr 2016
    4:47pm
    Mangomick if you can salary sacrifice to top up your contributions to the $35k maximum and still pay nearly $40k tax then you aren't a middle class worker by any means. I would say you're doing pretty damned well. Middle class workers only dream of earning your kind of money.
    MICK
    13th Apr 2016
    4:53pm
    Mango: every penny helps and the rich do not have just one out. Your comment about the $35,000 cap ignores the fact that if you left your money in the bank you would get a return of 3% but in super it is not only more but your tax on fund earnings is ONLY 15%. Forever. So instead of adding bank interest to your taxable incoming and paying tax on this at your highest marginal rate you only pay 15%. And then the effects of compounding starts to work for you. Also, you can pile more money in and get the same deal.
    Great deal...if you trust this government or for that matter any government in a debt fuelled world. I don't.

    Bonny: Yeah...in a Tax Haven like Mosseco in Panama. Turnbull uses the Cayman Islands and many others use the British Virgin Islands. All have one thing in common: tax not payable and out of the reach of creditors.
    Adrianus
    13th Apr 2016
    5:09pm
    Tom Tank, you are so out of touch. The average wage is $76,000. Mango is earning $175k. Many people are earning that sort of income.
    MICK
    13th Apr 2016
    5:15pm
    I knew you were an ex pollie Frank. That sort of comment pretty well confirms it. And next you'll be saying that a pension of $30,000 pa for a couple is too much!
    mangomick
    13th Apr 2016
    5:25pm
    Well Tom Tank and Gra, I certainly work for a living and I'm certainly not counted or regarded as the "upper class" otherwise I wouldn't have just finished 12 hour night shifts and my eyes wouldn't be hanging out of my head.So Yeah, I figure that makes me a middle class worker.You do realise that there is more to Australia than Sydney and Melbourne don't you? Cleaning ladies who clean the crib rooms make $100k a year in some regional Industrial and mining towns .As far as I'm aware Tom tank and Gra there isn't such a class for an ordinary wage earner as an upper class worker so i guess that makes me a middle class worker.
    Mick you cannot pile more money in to super than the $35000 cap unless it is money that you have already paid your normal rate of taxation on.
    MICK
    13th Apr 2016
    8:14pm
    I do understand that mango. What I indicated is that you could do this with after tax money and THEN ONLY EVER PAY 15% ON THE EARNINGS THEREAFTER. I am sure the rich have worked out how to use their SMSF to their benefit....those who do not use plan B in Panama!
    Adrianus
    13th Apr 2016
    8:23pm
    mick Panama has a corporate tax rate of 25% and for individuals 15%-20%. They may be called the Panama papers but they have absolutely nothing to do with Panama. It's a ruse to divert attention.
    MICK
    13th Apr 2016
    9:03pm
    The normal lie for the feeble minded Frank.
    Mossack is the Tax Haven in Panama which has made headlines but the truth is that Mossack is not even in the top 10 and that around 8% of all wealth is tied up with Tax Havens. THIS IS WHAT YOUR GOVERNMENT SEEKS TO HIDE LEST AVERAGE CITIZENS BECOME ENRAGED THAT THEY ARE BEING ABUSED. They are!
    mangomick
    14th Apr 2016
    9:53am
    The point I'm making Mick is Super is no longer the bastion for the mega rich. It is now a tool for the working class to be able to lock away money in a tax friendly environment so that they can retire and live modestly without having to suck on the public tit. The working class as you are aware traded wage increases for superannuation payments. Let's not cut off our nose to spite our face.
    And Frank....You can come and be my pay rep any time you like. $175k??? That's probably what I'm worth but not what I get.But you are right. There are many middle class workers earning far in excess of that who are flying in and out to seek good paying jobs while fore going the pleasure of seeing their own kids grow up.
    Adrianus
    14th Apr 2016
    10:22am
    mango, I agree with the idea of leaving super alone. I wish they would stop changing the rules so that those who really need it's advantages can plan ahead.
    You are paying $40k tax after reducing your taxable income by $35k. If you are not earning $175k then you have a huge refund coming. Let me know when the party is on he he he.
    You managed to stir up a messa angst with that lol!
    mangomick
    14th Apr 2016
    4:18pm
    Unless I have it wrong Frank,the $35000 cap on Superannuation contributions includes the Companies contribution as well. If you rework your figures allowing for a company contribution of 13% of my salary you will understand why you aren't getting an invite to that party.

    13th Apr 2016
    9:38am
    It shouldn't be taxed AT ALL!
    MICK
    13th Apr 2016
    12:11pm
    If there were no taxes the rich would funnel all of their income through a SMSF and the country would cease to function.
    What there needs to be Eddie is a fair system where the bigger the assets of a fund the more tax is payable. The current system has been abused by the rich for many decades. But then the loopholes were set up so that they could be milked. They have been. And the current government has no intention to change this.
    Be aware that there will be a day of reckoning Eddie. It may well be Death Duties as well as other attacks on this and the next generation. There's no such thing as a free lunch and sooner or later governments will come knocking on your door.
    Bonny
    13th Apr 2016
    4:07pm
    The rich I know only put what they have to into super and invest their money elsewhere. Just because the middle class use super to save tax doesn't mean that the rich do the same.
    MICK
    13th Apr 2016
    4:57pm
    I doubt there is even a shred of truth to that. Give me another investment where you get to avoid the real tax system on $35,000 pa, get a great return which you then only pay 15% tax on and then be able to take it out after 60 tax free again. I call that a great deal and please do not tell me that the rich do not have their self managed superannuation schemes to rort the life blood out of the system....with taxpayers subsidising the avoided tax!
    Adrianus
    13th Apr 2016
    7:44pm
    Bonny I know a couple worth $400m and they only contributed $2000 pa each.
    MICK
    13th Apr 2016
    8:14pm
    Yeah Frank...and with bank accounts in Panama.
    Bonny
    13th Apr 2016
    8:30pm
    Lost cause I think Frank.
    Retired Knowall
    15th Apr 2016
    9:08am
    Mick, figures from the ATO state that High Income Earner have less than 40% of their assets in Super. I agree that the Super System is attractive but it has to be to compensate for the Sovereign Risk associated with it.
    Personally my diversified portfolio has the Super component at less than 40%.
    If the Government modifies the Super Rules and doesn't Grandfather current accounts, the high value accounts will be plundered by the account holders, TAX FREE leaving the government bottom line worse off.
    Adrianus
    15th Apr 2016
    9:44am
    Retired Knowall I'm not sure what you mean by...."the Super System is attractive but it has to be to compensate for the Sovereign Risk associated with it." Can you explain that? What Sovereign Risk?
    Adrianus
    13th Apr 2016
    9:47am
    mick, I have what you call "rich" friends. They earn the average wage and some massively richer on $100,000 who have been maxing their contributions as they transition to retirement. I had no idea they were avoiding their responsibility to other Australians by beefing up their retirement savings! Wait till I catch up with them I will have to set them straight! Cripes, I'll bet they don't even consider themselves rich. I will let them know they ARE rich and to stop saving and give more to the ATO so people like you can spend it.
    MICK
    13th Apr 2016
    10:54am
    You are right wing cherry picking Frank. Maybe study the Panama papers if you want to see the tip of a very very large social iceberg. Superannuation is but one of a number of rorts set up to benefit the rich.
    I do not have a bias against rich people though you may perceive it to be so. What I find objectionable is that average wage and salary earners are paying their taxes whilst the well off are minimising theirs through schemes and rorts which the big end of town has set up FOR ITSELF.
    The trouble with your rich friends is that they are of the mindset that the poor need to pay for public infrastructure of all manner which they use whilst they lie and cheat their way to ever greater wealth. That my friend is obscene, as are your Liberal Party posts.
    Adrianus
    13th Apr 2016
    11:06am
    I think you'll find that the Panama Papers are full of communists and hypocrites who preach to the poor as if they are one of them. People like the Russian leader and the Malaysian PM who founf $681m in his personal bank account thanks to the Saudis. Maybe it's halal money from Australia?
    By the way did you eventually buy that house in Tokyo? Is the skiing good nearby? I just thought of solution to your car problem. You could buy the car and register it in the name of your tenant?
    MICK
    13th Apr 2016
    12:01pm
    The Panama Papers contain around 800 wealthy Australians and billionaires from around the planet.

    I am waiting for you to blame Bill Shorten in your normal blurb. Instead you are back to the normal BS you routinely trot out.

    You are off the planet Frank. Please crawl back under the rock mate!
    Adrianus
    13th Apr 2016
    12:07pm
    mick, no, not from around the planet. None from the USA. And mick stop trying to be nice to me it's out of character and seems insincere.
    MICK
    13th Apr 2016
    12:18pm
    Correct. Not from the US. One has to wonder if American names may have been removed.
    Of course you fail to tell readers that the British Virgin Islands have around 500,000 shell companies with a resident population of only 28,000. I'd be willing to bet you might find more than a few Americans in this lot.

    Sorry to be direct Frank. Not being politically correct and taking a dislike to rats is a problem I often wrestle with. I have said before that I do find your posts detestable as they are clearly not from an individual poster but rather straight from the Liberal Party seeking re-election.

    It is sad that a Putin troll factory copy is allowed to operate in likewise fashion in a (supposed) free country like Australia.
    Adrianus
    13th Apr 2016
    12:52pm
    mick as the names are released it will draw you closer to the real rats. There will be a common thread. Even though they release names of some on their own side to confuse people. I can read you communists like a book.
    MICK
    13th Apr 2016
    1:17pm
    I support neither side of politics. You do. I do not tolerate nor get involved in dishonesty Frank. You do. I refuse to own shares in gambling, drug or alcohol industries. I refuse to use dishonest and morally corrupt tax minimisation schemes Frank. I am thinking that you may.
    Communists? Get real my dear troll. The names which come up if and when the ATO starts prosecutions will be high flyers with large net wealth. That is a no brainer!
    Bonny
    13th Apr 2016
    4:15pm
    I'll have to tell my "rich" friends the same Frank. The average wage must be now getting up around the $80,000 mark so even the average wage earner will be rich soon.

    I can't see these "rich" people even knowing about tax havens let alone using them.
    Tom Tank
    13th Apr 2016
    4:39pm
    No Bonny the average wage is $48,000 per year so you obviously move in a different level of society to us ordinary people.
    Adrianus
    13th Apr 2016
    5:39pm
    Bonny you are correct! Full-Time Adult Average Weekly Ordinary Time Earnings between November 2014 and November 2015 has risen by 1.7% to $1,499.30. That makes the average yearly $77,963.
    Tom Tank, that's what the ABS statisticians have calculated.
    PAYEdmydues
    13th Apr 2016
    11:17am
    Mick

    Just what is your definition of rich? Is it wealth or earnings? Do you know the difference. Is it anyone paying less than the maximum tax rate or just someone who works productively and lucky to be well paid. Or is it just people who earn more than you? I think the answer is in your comment.
    MICK
    13th Apr 2016
    12:05pm
    This really should not be a discussion about rich or poor. It is about paying THE DESIGNATED AMOUNT OF TAX (a fair amount!!) rather than using both legal and illegal means to reduce tax and put the burden on average Australians who have a heap of mortgage debt and no money to spare.
    Are you an Australian or what PAYEdmydues?
    Bonny
    13th Apr 2016
    4:20pm
    Like Centrelink paying tax is also a game. You learn the rules and use those rules to play the game.

    I know an ex FIS officer from Centrelink who told me that you learn Centrelink's rules and play their game. They retired at 55 and from what I can see they are playing the game beautifully.

    So learn the rules and play the game as that is all the rich are doing.
    MICK
    13th Apr 2016
    4:59pm
    Bad 'rules' are normally set up to benefit a small cohort. I often wonder 'why' they are not properly drafted, but when you follow the money trail it frequently becomes clear.
    Bonny
    13th Apr 2016
    7:20pm
    No bad rules mick just rules you have to play the game with.

    It's simple just learn the rules and play the game. There are so real gems on the ATO website if you look for them.
    MICK
    13th Apr 2016
    8:16pm
    When you are in power you make the rules for yourself and your buddies. Anybody in politics knows that Bronnie! You did the same.
    Bonny
    13th Apr 2016
    8:44pm
    Good heavens I don't make the rules I'd make them too hard for even me to play the game.
    MICK
    13th Apr 2016
    9:04pm
    Yeah Bronnie. Time to catch a helicopter eh.
    Phil1943
    13th Apr 2016
    11:41am
    I worked 52 years and have paid enough tax. Now I should be allowed to live off my SMSF at no cost to the taxpayer and not have to pay another cent on whatever my fund earns. It's not wealth and I'm not 'rich' but I don't qualify for the aged pension either. Just leave me alone for another ten or fifteen years or so until I croak and don't come to me for tax revenues for such things as fighter aircraft of submarines. I've paid my way and that's more than many big corporations or wealthy idiots like Clive Palmer can say after all the tax they've avoided.
    MICK
    13th Apr 2016
    12:05pm
    I can relate to that.
    Fready
    13th Apr 2016
    5:01pm
    Tom Tank and Bonny the average wage is $59,576. See http://www.tradingeconomics.com/australia/wages.
    Bonny
    13th Apr 2016
    7:17pm
    No wonder we have become a welfare state. Families get full family benefits plus a Health Care Card with income under $51,027. That's an awful lot of families with the average wage at $59,576.
    MICK
    13th Apr 2016
    8:36pm
    A message from the Liberal Party Campaign Headquarters.
    Bonny
    13th Apr 2016
    8:42pm
    Unfortunately no it was from the ALP campaign headquarters instead.
    MICK
    13th Apr 2016
    9:07pm
    Your side of politics alone seeks to turn citizens into poverty stricken waifs whilst the rich who provide election funding for the Liberal Party have their rorts enshrined in legislation, never to be tampered with.
    Rodent
    13th Apr 2016
    5:06pm
    Tom Tank,, you may be a bit under with you $48,000 figure

    The latest data I have seen as at Jan 2016 showed Aus Average Wage at $59,576pa, or $1145.70 per week
    MICK
    13th Apr 2016
    8:17pm
    According to Frank it's $175,000. That may be Frank's parliamentary pension though.
    PAYEdmydues
    13th Apr 2016
    11:02pm
    Mick
    Yep I'm an Australian. Not sure why you ask. Seems like you want to play the man and not the ball. I have PAYEd all my taxes thank you. Over 100k for several years. And benefited in a small way from 15% tax concession on up to $35 K ie $5250 pa. My taxes will be payfor a good number of pensions. For your info the super salary sacrifice & concessions were legal and promoted by government. Not a Rort - neither fraudulent or dishonest. :) Have a nice retirement.
    PAYEdmydues
    14th Apr 2016
    12:49am
    Phil1943 - I endorse your comments. Enjoy your retirement.
    MICK
    14th Apr 2016
    7:19am
    You forgot to log off and then log on under your other avatar Frank.

    Nice to let readers know how you operate. Sad that you have to respond to your own crap.
    Spondonian
    19th Apr 2016
    2:51pm
    I had some super in UK which was frozen over there when I left in 1985. I had some super here but not very much since time is required to build up a decent amount. So when I retired 2 years ago I took out my Australian Lump sum and also my UK lump sum , both were Tax free at origin but when I had my Super from UK paid into my bank in Australia the TAX Office immediately taxed me on it saying since it came from UK it was Income ! How fair is that .
    Adrianus
    19th Apr 2016
    3:09pm
    It's not fair Spondo! We seemed to have had a falling out with the UK regarding some of the commercial treaties. Could be because of the large numbers of British migrants (2.9m) becoming too costly for Britain, leaving Australia to carry the can.
    Not Senile Yet!
    26th Apr 2016
    7:14pm
    Salary Sacrifice and Super Sacrifice was introduced to encourage people who could afford it to save for their retirement!
    However,...... as all humans discover loopholes......it became a rort for the higher end and quite simply not affordable or available for the Bottom end!
    Sadly it is now abused and the Top end .....not the middle.....but the top end benefit far too much out of it.
    No- one wants it shut down......what people want is for it to be more fair!!!!
    Put a limit on it and open up avenues for the Lower Incomes as well!!!
    There are Policies that worked well to develop and encourage people that are now out-of date....simply because the volume of tax concession has increased with the population.....therefore a modification is required!!!!
    Super is no different than any tax concession....it has to be affordable and it has to be fairly distributed!
    Sadly...at present that is not the end result!!!!
    Just as a Pension has an Income & Assets Test....perhaps the Super subsidies needs the same....to ensure only those that need it get it!!!!
    Bit disappointed however that no-one mentions the Billions taken from the Pension Cookie Jar of Reserves and SPENT during the 90's by BOTH Parties under the PM Malcolm Fraser!!
    They labelled it the Greatest LEGAL THEFT of all TIME!!!!!
    Amazing how a New Parliament House magically appeared in Canberra....bigger and better than most Countries in the Western World!!!!!
    No wonder they are pleading Broke......that Fund would have paid for at least 1/2 the Baby Boomers Pensions!!!!!
    Smug little Party Puppets in Canberra are still laughing their faces off over that little legal graft!!!!
    Not Senile Yet!
    26th Apr 2016
    7:20pm
    By the way...is it just Me or is it significant that the PM was a Malcolm????
    Naaahh!...... just a coincidence......yeah????
    Ooooh!...hang on...... doesn't this one want to Sell-off Medicare to Private Enterprise????
    just a thought here.....but isn't Medicare a Billion Dollar Enterprise....Cookie????
    Naaahh... couldn't be....just a coincidence eh?


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