Guide to Taxes on Super Withdrawals on Retirement

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, now 60 years of age.

If your super fund is a taxed fund, that is tax has been paid by the super fund on the contributions made to the fund (which most are) withdrawals from the fund will be concessionally taxed. This article outlines the tax treatment of withdrawals from taxed super funds. 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 accounts based fund, the taxation of withdrawals will be different to those outlined below.

Superannuation income streams

Superannuation income streams (or pensions) from taxed funds are made up of two components.

The taxable component is made up of:

• employer contributions
• salary sacrificed contributions
• contributions 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

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

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 are withdrawing a lump sum from super and are under 60 years of 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

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.