Taxes are just one of life’s certainties, and even your super isn’t immune from them. But how exactly do they work when it comes to your retirement fund?

Taxation is nothing if not complicated, and if you ever need further advice, or you’re finding the whole tax thing quite complex (we don’t blame you), reach out to an accountant for tailored tax advice. In the meantime, to give you a general overview, this guide aims to break it down to the basics.

Superannuation in Australia

Superannuation is Australia’s very own pension system, designed to help Aussies fund their retirement.

It’s typically made up of mandatory contributions by your employer, who makes regular payments to your nominated super fund throughout your working life. Over that time, your super is invested by your fund, to grow your nest egg so you’ve got a solid amount to retire on. (That’s a pretty basic explanation of how super works, but you can learn more in our superannuation guides .)

Super is an incredibly important part of Australia’s retirement system. Together with the Age Pension (a government benefit), it helps Aussies enjoy a comfortable life once they stop working .

Types of super contributions

There are several ways to contribute to your super; here are the main ones.

Employer contributions

Also known as the Superannuation Guarantee, mandatory employer contributions are payments made by your employer on top of your regular salary. For most people who work for an employer, these contributions often make up the bulk of their super.

Under the current rules, employers must contribute a minimum of 11.5% to your nominated fund each year, although that’s set to increase to 12% in 2025. Some employers – like government departments or universities – may offer higher rates.

Voluntary contributions

Voluntary contributions are payments you choose to make on top of the Superannuation Guarantee. They could be in the form of:

• Personal contributions . These come out of your pre-tax or take-home pay. Self-employed folks may also make personal contributions given they don’t have an employer contributing on their behalf
• Spouse contributions. This is where you contribute to your spouse’s super (or vice versa)
• Government co-contributions. The government pays these to low and middle-income earners who make after-tax contributions. You can read more about government co-contributions here

Salary sacrifice

Salary sacrifice is an agreement you make with your employer. Under a salary sacrifice arrangement, you agree to reduce your take-home pay in return for higher super contributions.

Bringing home less money might seem completely illogical, but many opt for salary sacrifice because it can offer tax advantages (more on that later). And it can be beneficial for employers too, as it can lead to savings on payroll tax.

If you’re interested in salary sacrifice, make sure to chat with a tax accountant or financial adviser who can help you decide whether it’s the right move for your situation.

How super contributions are taxed

Like any other financial investment, your super is subject to tax. But the amount of tax it’s liable for can vary.

See, you’re taxed at three different points, and each has its own tax rules:

• When you make a contribution
• When you get returns on your super investments
• When you release your super

We’ll dive into each one below.

Tax on superannuation contributions

Concessional (before-tax) contributions

Concessional contributions are made from your before-tax income. Mandatory employer contributions, salary sacrifice and pre-tax personal contributions you make yourself are all considered concessional contributions.

Concessional contributions tax

The current tax is 15%, and it's applied automatically by your super fund once the money comes in.

Concessional contributions cap

Under the current rules, you can contribute up to $30,000 each financial year before your contributions are subject to additional tax. That figure includes contributions made by your employer.

Contributions beyond $30,000 generally get added to your taxable income and are taxed at your marginal tax rate (i.e. your income tax rate). Although, if you haven’t hit your cap in previous years, you may be able to carry forward any unused amounts.

Non-concessional (after-tax) contributions

These come out of your after-tax income, i.e. your take-home pay. Non-concessional contributions include after-tax personal contributions, spouse contributions and government co-contributions.

Non-concessional contributions tax

Because you’ve already paid tax on your income, non-concessional contributions aren’t taxed by your super fund. But, if you end up claiming them as a tax deduction, your super fund will deduct the same 15% tax applied to concessional contributions. You’ll also become ineligible for government co-contributions. And when you’re making spouse contributions, you may be able to access a $540 tax offset if your partner’s income is less than $40,000.

Non-concessional contributions cap

There is a cap on the amount you can contribute from your after-tax income. In the financial year 2024-25, you can contribute up to $120,000 before your contributions are subject to additional tax. At the moment, excess after-tax contributions are taxed at 47%.

If you’d prefer to access these contributions, you also have the option to withdraw them along with 85% of any earnings. (Note that these earnings are subject to tax too, so make sure to chat with a tax accountant to figure out the best approach.)

Now, it’s worth mentioning here that there are special rules if you’re under 75 and have a total super balance of less than $1.9 million. If you fall into this category, you may be able to access a ‘bring-forward’ arrangement, whereby you can use one or two caps from future years. This allows you to utilise contribution limits from upcoming years in advance, meaning you can contribute up to $240,000 or $360,000 in the current year.

If your super balance is more than $1.9 million, your non-concessional contributions cap is zero. In other words, you can't make any after-tax contributions.

Tax on superannuation earnings

Your super is constantly being invested on your behalf – much like how you might invest in the share market . Super funds invest in a range of assets, including shares , bonds , property and cash. With these investments comes the potential for earnings. This is how super funds help grow your nest egg over your working years.

As with the returns you might get from investing, super earnings are also taxed. However, the rate they’re taxed depends on what stage of life you’re in.

Superannuation can be broken down into two different phases: the accumulation phase and the pension/retirement phase.

Accumulation phase

This is when you’re still working and building (or accumulating) your super. In this phase, investment earnings in super are taxed at a rate of up to 15%. Your super provider takes these taxes from your earnings automatically, along with any fees.

Retirement phase

This is when you’ve finished working, you’re accessing money from your super and you’re potentially receiving a pension. To get into the retirement phase, you need to have retired from work, reached preservation age, or have a terminal medical condition or permanent incapacitation.

If you’ve reached the retirement phase, your earnings aren’t taxed. But there is a limit to how much you can actually carry into the retirement phase. This is known as the transfer balance cap – a personalised figure that can differ depending on your circumstances. You can view your transfer balance cap via MyGov .

Tax on superannuation withdrawals

What about when you want to use your super? Generally speaking, you can only access your super if you meet one of the following conditions:

• You retire and reach preservation age . This could be anywhere from 55 to 60 years old, depending on the year you were born. You could either stop working entirely or kickstart the transition to retirement process, whereby you work part-time hours
• You need the money on compassionate grounds – such as paying for medical treatment or covering funeral expenses
• You’re facing a terminal medical condition, financial hardship or cannot work
• You have a super balance of less than $200
• You’re withdrawing voluntary contributions under the First Home Super Saver scheme

Depending on when and how you’re withdrawing your super , there may be different tax treatments.

Lump sum withdrawals

When you're withdrawing your super as a single payment, the lump sum tax can vary.

• Aged 60+: You don’t pay tax if you withdraw your super from a taxed super provider. However, your withdrawal may be subject to tax if you’re withdrawing from an untaxed super provider – like a state government super fund
• Under 60 and after you reach preservation age: You don’t pay any tax if you withdraw less than the low rate cap. Right now, the low rate cap is $235,000. Any withdrawals above that amount are taxed at either 17% or your marginal tax rate, whichever’s the lower of the two
• Before you reach preservation age: You’re taxed at a rate of 22% or your marginal tax rate, whichever is lower

Pension income streams

There’s also the option to withdraw super as an income stream.

• Aged 60+: You don’t pay any tax on that income
• Under 60: You have your income split into two parts. The first is taxable payments that consist of employer contributions (including salary sacrifice) and tax-deductible personal contributions. The second is tax-free payments, which are made up of after-tax contributions and government co-contributions
• Aged 55-59: Taxable payments are taxed at your marginal tax rate with a tax offset of 15%. Tax-free payments aren’t taxed
• Younger than 55: You’re taxed at your marginal tax rate on taxable payments and pay no tax on tax-free payments. The exception is if you’re withdrawing your super due to permanent incapacity. In this case, you’re taxed at the same rate as those aged 55-59

The difference for high-income earners

All of the above typically applies to the average income earner. But there are different rules for anyone whose combined income and concessional (pre-tax) super contributions are more than $250,000.

If you fall in this boat, you may be liable for the division 293 tax. This is where you pay the usual 15% tax on concessional contributions, along with an additional tax of 15% – effectively bringing the total tax paid to 30%.

Understanding the Total Superannuation Balance cap

This refers to the full amount of your accumulation funds and retirement funds on 30 June of the last financial year – in other words, all the money you have in super.

It’s important to know because it impacts whether you’re entitled to certain benefits, like government co-contributions and the spouse tax offset. It also affects whether you can make non-concessional (after-tax) contributions, carry forward any unused concessional contributions, or bring forward your non-concessional contributions.

The cap can change, but it currently sits at $1.9 million.

Changes to super taxing

Remember that rules around super – including tax rates and caps – are often being updated. For instance, the government regularly revises contribution caps in line with Average Weekly Ordinary Time Earnings (AWOTE) or changing economic conditions.

Your best bet is to check out the Australian Taxation Office (ATO) website for the latest figures and tax rates.

Taxes and super

Depending on what stage of life you’re in, and whether you’re contributing to, building or withdrawing your super, you’ll likely be taxed at varying rates. You may also benefit from different tax concessions or deductions based on your circumstances.

While this guide is designed to give you a basic overview of tax and super, taxes can be incredibly complicated and are subject to change. Stay on top of the latest updates by visiting the ATO website. And don’t hesitate to reach out to a tax accountant or licensed financial adviser if you need help navigating your tax situation or your path towards retirement.

Happy investing!