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. A person's preservation age ranges from 55 to 60, depending on their date of birth.

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 tax. 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.

For people from their preservation age to 59

As the preservation age for people who were born after 30 June 1964 is 60 years of age, this will only apply to superannuation income streams received during the 2024 and earlier years. For those income streams, 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.

For the 2024 and earlier years, 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 $235,000, for the 2023-24 year. This is a lifetime limit and was 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). For the 2025 year onwards, this low rate threshold will not be relevant. From the 1 July 2024, if you are over your preservation age, you are over 60 years of age, and all superannuation lump sum payments withdrawn from a taxed fund will be tax free.

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

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.