A summary of Rules applying to your Superannuation
- Australians can access their super from age 60 if they’ve permanently retired from the workforce, or at age 65 even if still working.
At that point, your account switches from the ‘accumulation phase’ to the ‘retirement phase’. This has some worthwhile benefits.
Taxation of Superannuation
The tax treatment of contributions to a superannuation fund and that of earnings in the fund make it an extremely tax-friendly vehicle in which to build wealth. Examples here will be based on an employee with a nominal income of $135k pa. This income is subject to a marginal taxation rate of 30, with incomes above this up to $190k facing a 37% marginal rate
- Employers are bound to contribute 11.5% of their employee’s salary as a ‘Superannuation Guarantee’ (SG) payment. This will rise to 12% from 1 July 2025.
- Contributions to superannuation receive a taxation concession, up to a limit of $30k per year. These controbutions are taxed at just 15% rather than the employee’s margin tax rate, So paying half or even less the taxation normally applicable to income is significant.
- In 2024, our model employee would receive a SG payment of $15,525. This leaves $14,475 available to contribute to one’s Super Fund at the concessional rate of 15% tax. If one could confidently invest extra funds until retirement, it would generally be beneficial to take this tax advantage and contribute extra funds to super rather than paying off the mortgage which costs around 6% pa. There are caveats to this which will be discussed separately.
- One can make additional deposits to their fund, however only that first $30k receives a tax concession. The annual cap for non-concessional contributions is $110,000. Individuals under 75 can bring forward up to three years’ worth of contributions (i.e., $330,000).
- Once in Retirement Phase, super fund withdrawals are generally tax free. Given that our $135k income was reduced by tax of just over $28k, a withdrawal of around $97k would yield the same purchasing power. The tax-free income from super is a remarkable gift!
- The treatment of a superannuation balance upon death is not considered part of one’s normal assets, and careful estate planning is required to ensure funds are distributed as desired. This is not automatic!