Tax on Superannuation 101

Understanding the Basics: Tax on Superannuation

Superannuation is the golden ticket to a secure retirement, but understanding how it’s taxed can feel overwhelming. The good news? The Australian super system is designed to be tax-efficient, helping you maximise your savings over time. Let’s break it down into simple terms so you can make informed financial decisions.

The Three Points of Super Taxation

Australia’s superannuation tax system follows a TTE structure—taxed, taxed, exempt. This means super is taxed at three key points:

Contributions – taxed when they enter your super fund
Investment earnings – taxed while they grow
Withdrawals – generally tax-free in retirement (from taxed super funds)

Each stage has its own tax rate and rules, making it essential to understand how your money is treated over time.

1. Tax on Super Contributions: Paying Less Now for More Later

When you or your employer make contributions to your super, some of that money is taxed. There are two main types of contributions:

Concessional (before-tax) contributions: Employer super guarantee (SG) payments, salary sacrifice, and voluntary pre-tax contributions are taxed at 15%. This is much lower than most personal income tax rates, making super a tax-effective way to save.
Non-concessional (after-tax) contributions: These come from your take-home pay and are not taxed when deposited, as you’ve already paid tax on this income.

However, if you exceed contribution caps ($27,500 per year for concessional and $110,000 per year for non-concessional as of 2023–24), additional tax may apply.

2. Tax on Super Investment Earnings: Growing Your Nest Egg

While your super fund invests your savings, any earnings (dividends, capital gains, or interest) are taxed at 15%. If an asset is held for over a year, capital gains tax is reduced to 10%.

Compared to personal investment accounts, where gains can be taxed up to 45%, super offers a golden opportunity to grow wealth in a lower-tax environment. Investment earnings on assets supporting a retirement phase income stream are tax-free, subject to a transfer balance cap of $1.9 million as of 2023–24.

3. Tax on Super Withdrawals: The Reward for Patience

Once you reach retirement age (currently 60 for most people), withdrawals from your super become tax-free if taken from a taxed super fund. This allows you to enjoy your hard-earned savings without worrying about the taxman.

If you withdraw before preservation age (between 55 and 60, depending on birth year), tax rates apply:

Up to $235,000 (as of 2023–24) – tax-free
Above this amount – taxed at 17% (including Medicare levy)

For super funds with untaxed elements (common in some public sector funds), withdrawals may attract tax even after age 60.

How Australia’s Super Tax System Compares Globally

Many countries follow an EET model (exempt, exempt, taxed), where contributions and earnings are tax-free, but withdrawals are taxed. Australia’s TTE model ensures the government collects tax revenue upfront, while retirees enjoy a tax-free income later. This unique approach encourages long-term saving while maintaining economic stability.

Why Understanding Super Tax Matters

Being informed about super taxation can help you:

Maximise your retirement savings – Take advantage of concessional tax rates and voluntary contributions.

Avoid unexpected tax bills – Stay within contribution caps and understand withdrawal rules.

Plan ahead for policy changes – Super tax rules can change, so keeping up to date ensures your retirement strategy remains effective.

Financial experts agree that leveraging tax benefits within super is one of the smartest ways to grow wealth. “A well-planned superannuation strategy can significantly reduce tax and ensure a comfortable retirement.”

Take Control of Your Super Tax Strategy

Understanding how tax works in Australia’s superannuation system puts you in control of your financial future. If you’re unsure how to optimise your super strategy, we’re here to help.

Contact DJ Grigg Financial today for expert advice on maximising your super savings and securing a golden retirement.

For more on our ‘Understanding the Basics’ series, see: