Previously, we discussed the tax rates that apply to your superannuation contributions. But what happens when you want to withdraw your funds?
The tax that applies when withdrawing money from your superannuation fund is impacted by several factors, including how old you are and whether the money was from a taxed or untaxed source. The rate also varies depending on whether you are withdrawing the money yourself, or the beneficiaries of your will are receiving it as a death benefit. The rate for the death benefit is also impacted by whether the recipients are relatives, whether they are receiving a lump sum or regular payments as an income stream – and whether tax has already been paid on the money in question or it is tax-free!
As you can see, the process of determining exactly how much tax you will pay when withdrawing money from your superannuation is far more complex than the tax on contributions, so let’s look at a few general guidelines, and if you have further questions, you should discuss the details with your accountant.
If you are over sixty years of age, you won’t pay tax on any of the taxable money you have already paid tax on previously, and you will pay between 10% – if you choose to receive the income as an income stream of regular payments – and 17% – if you choose to receive a lump sum payment – on taxable money that you haven’t already paid tax on. If you are under the preservation age (which is increasing from 55 to 60 over the next few years) you will pay higher taxes – up to 32%.
Basically, money in your super is taxable if you paid a reduced tax rate when contributing (your concessional contributions that were taxed at 15%, plus your earnings, which should also have been taxed at 15%) and tax-free if you paid your marginal tax rate prior to contributing (any non-concessional, after-tax contributions).
Why do you have to pay any tax on your superannuation withdrawals?
The tax rate on withdrawals is quite low after you turn sixty but higher before you reach preservation age. This is designed to ensure that anyone who accesses their funds before they are supposed to will end up paying their full marginal tax rate. Remembering that you will have paid 15% on the taxable component when paying it into the fund, the maximum 32% tax on lump sum withdrawals results in paying a total of 47%, which is the current maximum marginal tax rate.
By Jennifer Lowe