Superannuation is a tax effective way of building wealth during your working life to fund retirement. There are a range of strategies that can be used to find the most tax effective way of funding your superannuation in order to meet your retirement goals.

Access to superannuation funds are restricted throughout your working life and can only be accessed if a condition of release is met. The main condition of release is reaching preservation age (dependent on date of birth) or age 65.

Types of Superannuation Funds

There are different types of superannuation funds available. The first, and more common fund, is known as an Accumulation superannuation fund where contributions and earnings are accumulated in the fund over your working life. The final superannuation amount will therefore depend on the amount of contributions made and the earning rate of the fund. The balance of the fund can go up and down depending on movements in relevant investment markets.

The second, and less common, type of superannuation fund is known as a Defined Benefit fund. This fund takes into account factors including your age, final salary at retirement and how many years of service you have had with your employer. By taking these factors into account, your final benefit will generally be guaranteed by the fund.

Types of Superannuation Contributions

There are two types of superannuation contributions known as Concessional and Non-Concessional Contributions.

Concessional contributions are contributions made by or for an individual and can be tax deductible for the contributor. These contributions include contributions made by your employer (superannuation guarantee contributions), salary sacrifice and personal deductible contributions. Concessional contributions form the taxable component of the superannuation fund and usually taxed at 15% for incomes lower than $250,000 p.a. and 30% above $250,000.

Non-Concessional Contributions are contributions personal, after tax contributions made to the fund, i.e. from your own savings. These contributions are exempt from tax and form the tax-free component of the superannuation fund. There are limits as to how much super you may contribute.

Since July 1st 2017, there have been changes to superannuation legislation with new contribution caps in place. When concessional contributions are paid (before tax dollars). The superannuation fund pays 15% tax on the contributions. The concessional contribution cap is now $25,000 annually for all Australians. An individual may only contribute $100,000 annually non-concessional (after tax) contributions per year. Additionally, if your superannuation balance is greater than or equal to $1.6 million, you may not make any additional contributions for the year. Should you exceed any contribution caps, you may have to pay extra tax at the end of the financial year.

Carry forward provisions are also available where any un-used caps can be accumulated into subsequent years. There are conditions for both concessional and non-concessional bring forward rules.

Withdrawing from Superannuation

You may withdraw parts of your superannuation benefits depending on your condition of release. Such conditions include:

  • Meeting preservation age and retiring
  • Meeting preservation age and beginning a transition to retirement income stream
  • Termination of employment arrangement on or after 60
  • 65 years old
  • Death

Tax implications of withdrawing depend on age, time of withdrawal, amount withdrawn and superannuation component from which funds are taken.

Withdrawing under age 60s

  • Depends on age, circumstances and taxed and non-taxed superannuation components

Withdrawing over age 60

  • Tax free and non-assessable

Death Benefits

  • Superannuation benefits paid to beneficiaries are tax-free.
  • Payment to non-beneficiaries are subject to tax depending on the components within the superannuation fund