How Superannuation Income Streams and Lump-Sums Affect Your Taxes

How Superannuation Income Streams and Lump-Sums Affect Your Taxes

A quick overview of which super benefits are taxed, which ones aren’t, and when you can get a tax offset

It’s no secret that super funds are complicated, especially when it comes to lodging taxes. It’s hard to know what gets taxed, what doesn’t, and when you can get a tax benefit from what.

This brief article isn’t meant to be comprehensive (and it’s probably a good idea to speak to an accountant or financial planner about your super) but hopefully this breakdown will give you a good idea of how your super can affect your taxes.

Super benefits breakdown

Super benefits have two components: a tax-free component and a taxable component.

The tax-free component, as the name suggests, is always tax-free. The taxable component, on the other hand, may be taxed, but it depends on the on your age and the size of the benefit.

Non-concessional contributions (that is, after-tax contributions) go toward the tax-free component. Earnings on these contributions, however, go toward the taxable component.

Whether super benefits are taxed depends in large part on your age:

Super benefits after 60

As a general rule, if you are over 60 you can receive your superannuation benefits tax-free either as an income stream or a lump sum. You must satisfy a condition of release, such as retirement, or starting a transition-to-retirement pension

The exception to this rule is members of certain public sector super funds that are untaxed schemes.

Taking super benefits as a lump-sum before 60

If you retire between the ages of 55 and 60, you can receive a lump-sum of up to $180,000 of your taxable component free of tax. This applies as long as the component is a taxed element. Most super benefits (except those from certain public sector funds) are treated as a taxed element.

Note that this is in addition to the tax-free component, which is still tax-free even under the age of 60.

Taking super benefits as an income stream before 60

If you’re under 60 you can also choose to take your super benefits as an income stream. This choice comes with two tax benefits.

  1. Fund earnings on the assets that fund this income stream are tax-free.
  2. The taxable component of this income stream could earn you a tax offset (see below) as long as you have reached preservation age.

Again, the tax-free component is always free.

Australian superannuation income stream tax offset

If you have income from an Australian superannuation income stream, you may be entitled to a tax offset.

This tax offset will either amount to

  • 15% of the taxed element, or
  • 10% of the untaxed element of your superannuation income stream benefit

The amount of your tax offset will be shown on your PAYG payment summary – superannuation income stream.

To determine your total offset, add up the offsets shown on your payment summary.

If you did not receive a payment summary or lost your payment summary, contact your payer. You should also do this if you think you qualify for this offset but it wasn’t shown on your payment summary or you disagree with the amount shown on your payment summary.

You cannot get a tax offset for the taxed element of any superannuation income stream you received before turning 55 unless it was

  • a disability superannuation benefit, or
  • a death benefit income stream

Also, you cannot receive a tax offset for the untaxed element of any superannuation income stream you received before turning 60 – unless its a death benefit income stream and the deceased died after they turned 60.

Super benefits can make figuring out taxes quite difficult, especially if you’re trying to do taxes yourself or use the ATO’s complicated e-tax software. Thankfully there’s E-Lodge, which will sort everything out for you based on the information you enter.

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2 Responses to “How Superannuation Income Streams and Lump-Sums Affect Your Taxes”

  1. Mike Cole says:

    Do you file returns for Pty Limited companies

  2. Tax Advisor says:

    Hi Mike!
    Unfortunately, we do not file returns for companies and businesses. However, we do file returns for individuals filing any number of business and professional items… Check out our pricing page and you can learn more about who we can lodge returns for.

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