Australian Superannuation Taxation A percentage of your superannuation contributions and earnings will be subject to taxation from the Australian Tax Office at several levels. The following is a list of some of the more common instances when your superannuation will be taxed. Superannuation Taxation of Contributions The annual tax rate on deductible contributions is 15% for complying superannuation funds. This will already be a lower rate for any annual income higher than $6,000 generated from non-superannuation means and should therefore be considered a very attractive rate. Contributions subjected to tax include: employer superannuation guarantee payments and salary sacrifice contributions deductible personal superannuation contributions by self-employed individuals contributions made by one individual to another excluding spouse or child contributions roll-over amounts which meet specified criteria Superannuation Taxation of Earnings Earnings and capital gains derived from the investments made from your superannuation funds are taxed at a rate of 15%. Depending on your circumstance, the actual taxed amount may be offset by the capital gains tax discount or any dividend imputation credits for shares if applicable. Superannuation Contributions Surcharge The superannuation contributions surcharge is an additional tax on top of the 15% contributions which is imposed on high-income earners. The total taxation for the surcharge will range from 1% to a maximum of 15% based on lower and upper adjusted taxable income thresholds. These thresholds vary (usually increase) for each financial year. For the 2004-2005 financial year, the lower and upper thresholds are $99,710 and $121,075 respectively. If your adjusted taxable income falls within the specified thresholds, the Australian Tax Office will arrange for the surcharge to be deducted from your superannuation fund. You should receive the necessary notification of this occurring should it apply to you. Eligible Termination/Lump Sum Payments If, or when, you choose to leave the superannuation system (e.g. due to retirement) by cashing in on your Eligible Termination Payments (ETP), superannuation taxation will also apply to your lump sum. Your lump sum and taxation rate will be divided into several categories. Undeducted contributions or contributions where you did not receive a tax deduction are tax free. This includes spouse and children contributions as well as government co-contributions. Excess benefits, i.e. any amount over the defined Reasonable Benefits Limit (RBL), are taxed at the highest personal rate (47%) plus the Medicare levy. For contributions made while working before July 1983, 95% will not be taxed while 5% will be included in your assessable income for the year and taxed at the marginal taxation rate plus the Medicare levy. For contributions made while working after June 1983, the total amount will first be divided into taxed (i.e. the amount where the 15% contribution tax has already been paid) and untaxed components. If you are under the age of 55, your tax rate will be 20% and 30% for the taxed and untaxed components respectively. If you are over the age of 55, the amount will be further divided into amounts under and over the ETP tax-free threshold. The ETP tax-free threshold for 2004-2005 is $123,808 and is re-adjusted each year. Amounts under the threshold are taxed at 0% and 15% for the taxed and untaxed components respectively while the superannuation taxation rate for amounts over the threshold are 15% and 30% for the taxed and untaxed components respectively. Recommended Reading Manage your own super with DIY Self-Managed Superannuation Funds. Minimise fees and enjoy high returns with Industry Super Funds. Get tips on how to Choose the Right Super Fund. Understand the various types of Superannuation Funds available.