The tax impacts of Superannuation

Superannuation - you likely either think and know a lot about it, or not at all. There doesn't seem to be much of an in-between on this topic.

It's something that we accountants like to bring up with our clients - especially those that are self-employed and may not be making contributions to their super. This is for a number of reasons; firstly because we care about how you're going to get by in retirement and want to make sure that this is something you're planning for, but also because taking money out of or putting money into superannuation can impact your tax return in a number of ways.

Taking Money Out of Superannuation

There are a few things that people can be aware of when taking money out of superannution. Firstly, it's not always tax-free. Funds taken from superannuation after the age of 60 are generally tax-free. Before this there are many different factors that play into determining whether the funds are taxable and at what rate.

If you are between your preservation age (see here) and 59, you may be able to take funds from superannuation tax-free up to a certain cap. This is called the low-rate cap and it's a lifetime cap. As of the date of this blog, the cap sits at $215,000. Once you have reached the cap, any withdrawal from superannuation before turning 60 will be taxable.

For those who are below their preservation age taking money from super, in most cases it will be taxable.

There are many factors that determine whether tax is payable, the rate of tax payable, and whether you can take money from your superannution fund. If you think you may be eligible to, discuss it with your accountant and/or financial planner to make sure that you have all the relevant information before acting.

Making Superannuation Contributions

This is important for those who are self-employed and may not have much in the way of superannuation, but can be applicable to wage earners also. Funds contributed to your own superannuation - up to the contributions cap - are tax deductible. As at the date this blog is published, the general superannuation contributions cap is $27,500.

What's important to know about this is, a contribution to superannuation that is not claimed as a tax deduction is tax-free in the fund. To claim a tax deduction you need to notify your superannuation fund via an intent to claim notice, and the contribution turns into a concessional contribution which is taxable in the fund at 15%. The tax benefit of claiming a deduction generally outweighs the tax payable in the fund, but it's also recommended to get advice from your accountant and/or financial planner before going ahead if the intention is to claim.

Superannuation is a very complex thing, especially when the tax implications are taken into account. Note that the information in this blog is very limited in the scope of what is involved, and the information provided here is general in nature. Your own personal circumstances may have an impact on what measures are available to you and the impact it would have on your tax. Make sure you are getting the correct advice before taking any action, and if you have no idea how much superannuation you have - go check your balance right now! It's never too early or too late to start planning for retirement.