Understanding The 3 Stages of Super Tax

  • Posted 08 Sep

Understanding The 3 Stages of Super Tax

Superannuation is compulsory retirement saving in Australia, and the government endorses it for all those who want to have a ‘nest egg’ waiting for them when they leave the work force.


However, before you start investing in a superannuation fund, it’s important to understand how it all works. More importantly, investors need to understand how the super and tax law works when it comes to these retirement contributions, particularly once you start withdrawing.

Super Tax Explained

Stage 1: Making Super Contributions

The first stage is actually putting money into the superannuation fund. All of the funds that you put into a fund are tax deductible, meaning that those funds are subtracted from your yearly earnings when calculating taxes.

It’s important to remember that all contributions are subject to a contributions tax, which is calculated at 15 percent. This will be calculated on a yearly basis, and it will be paid along with all of the other taxes you are expected to pay to the government.

While this might seem like a lot to pay, it’s important to look at the actual savings these contributions create. There’s your retirement savings, which is the main reason for the contribution, but there’s also tax deductions. Even with 15 percent tax on contributions, that can be a major savings over what taxes would have been paid if that money had just been declared as regular earnings.

Stage 2: Earnings Tax

As soon as contributions are placed into a superannuation account, they start earning interest, the same way they would in a regular savings account.

All of the earnings that a superannuation account creates are subject to taxation as well. When an account is not actively paying out to an individual, it’s said to be in the “accumulation phase,” and all earnings, while it’s in that phase, are also taxed at a flat 15 percent rate.

It’s important to remember that if the assets in your superannuation fund are sold off, then instead of the 15 percent tax rate, an individual has to pay a 10 percent capital gains tax instead. This only applies to assets such as housing. There’s no way to avoid this without paying some kind of tax.

Stage 3: Tax when Receiving Super Benefits

Generally when someone starts receiving benefits from their super earnings, there are fewer taxes to consider. There’s no longer a tax on the interest earned by the account, once it’s entered the “pension phase,” which is where it’s actively being used to finance someone’s retirement.

Taxes do have to be paid on the money if it came from an untaxed source originally, but if all of the taxes were paid on it up until the owner was at least age 60, then there’s no more need to worry about the taxes on retirement savings.

Before investing in superannuation or moving to a new fund, it’s important to take a look at all your options and to be sure that it’s the best choice available.

Once you’ve chosen an option, it’s also a good idea to sit down with a financial planner and figure out how the future is going to look and if this fund will meet your financial goals in retirement.

If you want to know more about superannuation, the different types of funds available and how you can benefit from each one, get in touch with our experts to find out more today.

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