Tax
Tax file number (TFN)
The information in this Tax section assumes that you have provided your TFN to your super fund. You are not required to provide your TFN to your super fund by law, but if you choose not to you could face penalties like higher tax rates on contributions and limits on the kind of contributions your fund can accept on your behalf.
From 1 July 2007 your employer is required by law to pass on your TFN to your super fund within 14 days of receiving it for employment purposes or at the time your employer makes the next contribution for you, whichever is the later.
Tax on super
Tax applies to super at three stages:
1. Tax on payments into super
A tax of 15% is deducted from ‘concessional’ contributions to your super account like award payments, Superannuation Guarantee payments, salary sacrifice payments made by your employer or any before-tax personal contributions you make - usually self-employed deductible contributions. No tax is deducted from after-tax (‘non-concessional’) personal contributions.
2. Investment earnings tax
Earnings on your super investments are taxed at a lower rate than the earnings from non-superannuation investments. Investment earnings in superannuation are currently taxed at 15% compared with your normal marginal tax rate which could be as high as 46.5% (including Medicare levy), depending on your income.
3. Tax on payments out of super
Members aged 60 and over pay zero tax when taking their super as a lump sum (cash) payment.
For members under 60 years of age superannuation benefits are divided into two components:
Tax Free Component
As the name suggests, you pay zero tax on this component of your super when it is withdrawn from your fund. This includes your crystallised (tax free) component as at 1 July 2007 plus any non-concessional contributions made after 1 July 2007.
The crystallised tax free component includes:
- the pre-July 83 component;
- the CGT exempt component;
- the post-June 1994 invalidity component;
- the concessional component; and;
- the non-concessional (post-tax) contributions.
Taxable Component
The balance of your super account is your taxable component. The amount of tax you pay depends upon when you claim your super benefit.
The taxable component includes:
- a taxed element, which is taxed at the rates described below, and
- an untaxed element, consisting of amounts such as superannuation guarantee amounts from the ATO and amounts rolled over from certain public sector superannuation schemes.
If you reach your preservation age but are under age 60, the first $165,000 (2011/2012 rates) of the taxed element of your taxable component will not be taxed. Amounts above this threshold will be taxed at 16.5% (including Medicare Levy of 1.5%).
If you are permitted to access your super prior to your preservation age, the tax rate on the taxed element of your taxable component will be 21.5% (including Medicare levy of 1.5%).
Tax on Death benefits
The tax payable on a lump sum death benefit (the payment of a deceased member’s super) depends on who receives the benefit and how it is paid.
A lump sum death benefit payment will be tax free if is paid to a person who is a dependant of the deceased member. A dependant for tax purposes is classified as a spouse or former spouse (in some instances), a child less than 18 years of age, a person with whom the deceased had an interdependency relationship just before he or she died, or any other person who was dependent on the deceased just before he or she died. For tax purposes, a child who is 18 years or over and is not in an interdependency relationship with you or is not financially dependent on you is considered a non-dependant.
If a lump sum death benefit is paid to a non-dependant, the taxable component of the deceased member’s benefit will be taxed at 16.5% (including Medicare levy of 1.5%). Insured benefits are taxed at 30%.
Tax deductions and rebates
18% Spouse rebate
If you make contributions on behalf of your spouse, you may be eligible to claim an 18% tax offset on superannuation contributions of up to $3000 made on behalf of a low income or non-working spouse. The maximum rebate allowed is $540.
Any spouse contributions over $3000 are not eligible for a tax rebate. If your spouse earns over $10,800 in a financial year the rebate payable to you for super contributions to your spouse will be reduced. The rebate ceases when your spouse earns more than $13,800 in a financial year.
For this purpose, a spouse includes a person who, although not legally married to you, lives with you on a bona fide domestic basis as your husband or wife, but does not include a person who lives apart from you on a permanent basis. It can, however, include a person of the same sex.
Visit our fact sheets section to download a spouse contribution fact sheet
Tax deductions for the self-employed
If you are self-employed or substantially self-employed, you may be able to claim a tax deduction for some or all of the money you put into your super.
If you are self-employed you can claim a 100% tax deduction on personal contributions you make, however, only contributions to your super within your annual concessional contribution cap ($25,000 for the 2011/2012 financial year if you are under age 50) will be taxed at the concessional rate of 15%.
You will be taxed an additional 31.5% (including Medicare levy of 1.5%) on contributions to super made in excess of the concessional cap.
Tax tips
This information is of a general nature. For more information you should seek professional advice from a licensed financial adviser or their authorised representative.
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