How your super or non-super income stream is taxed

How much tax you pay on retirement income depends on your age and the type of income stream.

For most people, an income stream from superannuation will be tax-free from age 60.

How your super or non

How super income streams are taxed

Types of super income streams

Income from super can be an:

  • account-based pension — a series of regular payments from your super money

  • annuity — a fixed income for the rest of your life or a set period of time

What is taxable and what is tax-free

Part of your super money is taxable, made up of:

  • employer contributions

  • salary sacrificed contributions

  • personal contributions claimed as tax deductions

Part is tax-free, made up of:

  • after-tax contributions

  • government co-contributions

If you’re age 60 or over

Your entire benefit from a taxed super fund (which most funds are) is tax-free.

If you’re age 55 to 59

Your income payment has two parts:

  • taxable — taxed at your marginal tax rate, less a 15% tax offset

  • tax-free — you don’t pay anything more

If you’re age 55 or younger

You can usually only access your super if you experience permanent incapacity. If this happens, you’ll be taxed the same as people aged 55 to 59.

If accessing super for a different reason, such as severe financial hardship, your income payment has two parts:

  • taxable — taxed at your marginal tax rate

  • tax-free — you don’t pay anything more

Use this income tax calculator

Work out your marginal tax rate.

Tax on other types of super funds

Defined benefit super fund

If you’re with a defined benefit super fund, you’ll get a statement from your fund before becoming eligible for your benefit (super money). This will tell you how much of your benefit is taxable and how much is tax-free.

Untaxed super fund

Some government super funds don’t pay regular tax on contributions. These are known as ‘untaxed funds’. If you’re a member of an untaxed fund, you pay tax when you access your money. Check with your fund to find out more.

Self-managed super fund (SMSF)

If you’re part of a self-managed super fund (SMSF), how you access your money depends on the ‘trust deed’ (rules).

Tax on transition to retirement income streams

With a transition to retirement (TTR) income stream, you can access your super while working. To get one of these pensions, you must have reached your preservation age (between 55 and 60).

Use this super and pension age calculator

Find out your preservation age.

You can take out up to 10% of the balance each financial year. You can’t withdraw it as a lump sum.

You pay the same amount of tax as on other super income streams, according to your age. Investment returns on TTR pensions are taxed at up to 15%, the same as a super accumulation fund. 

Tax on non-super income streams

With an annuity bought with money from outside super, you get a fixed income for a set period of time. This pension income, less a deductible amount, is taxed at your marginal tax rate. 

The deductible amount is the part of your original money (capital) coming back to you with each pension payment.

Get help if you need it

Find out more about withdrawing your super and paying tax on the Australian Taxation Office (ATO) website.

Services Australia’s Financial Information Service offers free seminars on topics such as retirement income and pension options.

For information about super contact us on 03 9553 0271 or speak to your accountant for help with tax matters. 

Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/retirement-income/retirement-income-and-tax

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CFP® Dip FP
Authorised Representative 298494
Interprac Financial Planning Pty Ltd 

Darryl Jopling

Senior Adviser

I have worked in the financial services industry since 1982 and as a Financial Adviser since 1999.

I have worked for large Financial Planning businesses, Membership based organisations and looked after the financial planning needs of clients within an Accounting Practice before starting my own business.

I am married, have 4 older children and a grandson and I am keen golfer with mixed results like many .

I have been through many of the strategies I talk with clients about myself and with my family.

I have been through the journey of seeing my parents move into Aged care and negotiated the difficulties and pitfalls of understanding the system for them and this gives me an excellent insight into what is required to assist families at this difficult time.

In a previous roll I used to run retirement seminars looking at Centrelink and Retirement Incomes and how to make these work for you. I have helped many of my clients with Aged Care advice when their parents needed to move into Nursing Homes. For many clients I assist them with superannuation, building wealth and protecting their loved ones with insurance.

I am supported by his, Licensee, Interprac Financial Planning’s in-house resources and ongoing technical, systems and training.

I am committed to understanding your needs and identifying strategies and products to help you achieve your goals.

My guiding principle as an Adviser is to design plans which help to provide my clients with clarity of purpose and the opportunity to build a solid financial foundation.
I will take the time to listen, explain things clearly and keep you informed throughout the advice process.

My experience is complemented by professional qualifications including:

  • Certified Financial PlannerTM Professional
  • Diploma of Financial Planning

At Choice Financial Advice we work with you along the way on life’s journey.

Whether you are getting married, starting a family, embarking on the trip of a lifetime, planning to enjoy your years after work or assisting elderly parents with Aged Care and Nursing Home placements, we can help.