Guide to Taxes on Super Withdrawals on Retirement

By H&R Block

4 min read

When you become eligible to access your super you can take a super income stream to provide you with a regular income, or you can withdraw all or part of your benefit as a lump sum.

Superannuation income streams

Super income streams are also known as pensions (which have no set time period) or annuities (which are fixed for a specific time period). They are made up of two components, taxable and tax-free.

The taxable component is made up of:

employer contributions
salary sacrificed contributions
contributions by a self-employed person where a tax deduction was claimed

The tax-free component is made up of:

after tax contributions
government co-contributions

For people aged 60 and over

Benefits from a taxed super fund (i.e. most super funds) are tax-free.

For people aged 55 to 59

No tax is payable on the tax-free component of your income payment. The taxed component however is added to your taxable income and taxed at your marginal tax rate, less a tax offset equal to 15% of the taxable portion of the payment.

Lump sum withdrawals

If you are aged 60 or over any withdrawals from a taxed super fund are generally tax-free.

Tip

Speak to a financial adviser to find out the best way to take your super since taking all of your super on retirement as a lump sum may not be a good idea.

If you take a lump sum and you are aged between 55 and 60, you can withdraw up to the low rate threshold, currently $185,000, tax-free. This is a lifetime limit and is indexed annually. The threshold does not include the tax-free portion of your super account, which will be returned to you tax-free. Any amounts over the low rate threshold will be taxed at 15% (plus the Medicare levy).

If you are withdrawing a lump sum from super and are younger than age 55 (which is only possible in very limited circumstances), the lump sum will be taxed at 20% (plus the Medicare Levy).

Tax on Death Benefits

In most cases, when a person dies, their super fund will pay their remaining super to the person they have chosen as their nominated beneficiary. Super paid after a person's death is called a 'super death benefit'.

The tax on a super death benefit depends on:

whether the person receiving the benefit is a dependent or non-dependent of the deceased person
whether the benefit is paid as a lump sum or super income stream
whether the super is taxable or tax-free (see above), and whether the super fund has already paid tax on the taxable component
the age of the person receiving the benefit
the age of the deceased person when they died.

Download more information on tax on death benefits

Marginal Tax Rate - Who is a Tax Dependent?

A dependent of the deceased includes:

a surviving spouse or de facto spouse
a former spouse or de facto spouse
a child of the deceased who is under age 18
ant other person who was financially dependent on the deceased
any person who had an interdependency relationship with the deceased

If you’d like to know how your particular situation is impacted by the tax law, seek out professional advice, either from a tax adviser like H&R Block or from your financial planning specialist.