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.

Access to super benefits is generally restricted to members who have reached preservation age. A person's preservation age ranges from 55 to 60, depending on their date of birth.

Date of birth Preservation age (years)
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
After 30 June 1964 60


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:

The tax-free component is made up of:

For people aged 60 and over

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

For people from their preservation age to 59

No tax is payable on the tax-free component of your income stream 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 accumulation 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 your preservation age and 60 years of age, you can withdraw up to the low rate threshold tax free. The low rate threshold is currently $235,000, for the 2023-24 year (increased from $230,000 for the 2022-23 year). 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 your preservation age (which is only possible in very limited circumstances), the lump sum will be taxed at 20% (plus the Medicare Levy).

If your super fund is an untaxed fund (generally run by Commonwealth, State or Terriroty Governments) and / or a defined benefiit fund (these are not very common) rather than an accumulation fund, the taxation of withdrawals will be different.
 

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.

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
  • any other person who was financially dependent on the deceased
  • any person who had an interdependency relationship with the deceased
The tax-free component of a super death benefit paid as a lump sum is tax-free to the beneficiary. The taxable component of such a benefit is also tax free if it is paid to a dependent of the deceased. If paid to a non-dependent, the payment is taxed at a maximum rate of 15% (plus medicare levy) if the super fund as already paid tax on the amount, and 30% (plus medicare) otherwise.
A superannuation death benefit income stream can only be paid to a dependent. The tax treatment of the taxable component is shown in the table below.
 
Age of deceased Age of dependant Taxed Element Untaxed Element
Less than 60 Less than 60
  • Marginal rates
  • 15% offset
  • Marginal rates
60 years and over Nil*
  • Marginal rates
  • 10% offset
60 years and over Any age Nil*
  • Marginal rates
  • 10% offset


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.

 

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