Tax on Superannuation
Tax File Number
First things first – if you haven’t provided your tax file number to your fund, you will pay more tax on your contributions, including your employer’s contributions; you also won’t be able to make any after-tax contributions into your fund.
When looking at tax on superannuation therefore, it is critical to have provided this information to your superannuation fund.
The tax applied to superannuation depends upon whether your contributions are concessional or not.
Pre-tax contributions are known as concessional contributions, and these are made to a superannuation fund, whether these be the compulsory contributions made by your employer or those made via a salary sacrifice, prior to marginal tax being charged on your income.
The rate of tax that you will pay to the Australian Tax Office will vary, depending upon how much you earn; the lowest level of marginal tax however is 19%.Concessional contributions are taxed at a rate of only 15%, and even at the lowest level of income, this represents a tax saving. It is for this reason that the pre-tax contributions that can be made are capped, otherwise they could be ruthlessly exploited, especially by those on higher income and thus higher tax rates.
The cap for concessional contributions is $30,000 ($35,000 if you are 49 or above), and pre-tax payments that exceed this cap will result in additional tax of 30% being applied, and an interest charge also being levied on the excess contributions.
A number of people choose to make additional contributions towards their superannuation fund, after marginal tax has been applied to their income. As these monies have already been taxed at the marginal rate, tax is not considered an issue.
Whilst you are free to make additional payments into your fund however, there are limits on non-concessional contributions; the standard limit is $180,000 a year, or a maximum of $540,000 over any 3 year period, and any contributions over this limit will be taxed at the top marginal rate of 49%.
Withdrawing from your super
Tax may be charged if you make a withdrawal from your superannuation fund. If you are 60 or over, there will be no tax charged; however if you are under 55, the withdrawal will be taxed at 22% (for those between 55 and 59, $185,000 is tax free and 17% tax applied to the balance)
Tax on earnings
Superannuation funds are accumulation funds, which rely on earning investment income in order to reach a reasonable level for when you retire. These earnings are taxed at the concessional rate of 15%, with the tax deducted from your earnings before they are applied to your account.
Tax is applied to superannuation in a number of ways. The primary contributions are taxed at 15%, to a maximum level after which additional tax is accrued. Tax is also payable on earnings on the investments within the superannuation portfolio, and also on withdrawals prior to you reaching retirement age. As with any financial product there will be exceptions to the rule, and if you are unsure, independent financial advice is recommended.