Australian Superannuation Taxation

Australian Superannuation Taxation

Introduction to Taxation Of Australian Superannuation Funds

The tax treatment of Superannuation funds in Australia is very generous, and it pays to understand the full range of benefits. This allows one to build more wealth with just a little knowledge.
This article will be built over time, and there are some caveats and limits in place to be considered, but the key aspects affecting the majority are:

  • Contributions to Super are taxed at just 15%, not one’s marginal rate which is 37% for a taxable income over $120k, and 45% over $180k. This includes the employer Superannuation Guarantee (SG) payments, as well as salary sacrifice and concessional contributions.
  • Similarly, pre-retirement, earnings (dividends and capital gains) are taxed at just 15%.
  • The best news is that once super is in ‘Pension’ Phase, there is zero tax on earnings within the fund. So Dividends and capital gains are immune from tax!

These benefits can be taken advantage of as follows.

  1. If one can accommodate assets being inaccessible until retirement, they are much better held in a superannuation fund than privately. This provides the lowest taxation environment .
  2. Assuming a salary of $120k, one’s 12% employer SG payment would be $14,400. As the limit for concessional contributions is $30k, that leaves $15,600 available to be deposited to one’s super at the concessional rate of just 15% tax instead of 37%. This saving of 22% is worth $3432. Compound that for 30 years at 10% and that’s worth nearly $60k!
  3. Zero taxation in pension phase is a significant benefit. Taking the example again of the $120k salary, the take home pay after income tax and 2% medicare levy is just over $29k. So one only needs to draw down $91k from their fund each year to have the same cash in hand income as they had when employed. Further, one is no longer salary sacrificing to super, improving the situation even further.

There is a lot more to the story, but this captures the main concepts to help one plan for retirement. Don’t waste the $30k limit, and don’t keep assets privately!