What is the taxable component in superannuation?

There are two main tax components that make up a superannuation balance. These components are the Taxable Component and the Tax-Free Component (sometimes referred to as the Exempt Component).

The Taxable Component is further sub-categorised into the Taxable (taxed) Component and the Taxable (untaxed) Component.

The relevance of the Tax-Free Component, Taxable (taxed) Component and Taxable (untaxed) Component is that each of these components are treated differently for tax purposes when withdrawn from the superannuation accumulation or pension environments, including when a superannuation death benefit payment is made.

Taxation of the Tax-Free Components is simple; it will always exit a superannuation account tax free, regardless of whether it is withdrawn as a lump sum, paid as a pension payment from an income stream, or paid to a beneficiary or estate as a death benefit payment.
 

What is the Taxable Component?

 
The Taxable Component within a superannuation accumulation account essentially consists of:

– All contributions made to the account where a tax deduction was claimed by the contributor (i.e. SG Contributions, Salary Sacrifice, Self Employed); plus

– All earnings within the account (positive and negative); plus

– Most insurance proceeds within the account; plus

– All other additions to the account from a previously untaxed source

The first two items noted above, contributions and earnings, make up the Taxable (taxed) Component and the final two, insurance proceeds and additions from an untaxed source, make up the Taxable (untaxed) Component.

The actual legislative calculation of the Taxable Component within an accumulation account is that you first add-up all of the Non-Concessional (after-tax) Contributions that have been made to the account. these contributions make up the Tax-Free Component. From this amount, you then deduct any proportionate withdrawals that have been made from the tax-free component and whatever is remaining is the Taxable component.

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Each withdrawal from a superannuation accumulation account must be made proportionately from the Tax-Free and Taxable Components.

The Taxable Component of a pension income stream is a little different, because upon commencement of an income stream, all components are crystallised as a proportion of the purchase price of the pension. For example if a pension income stream was started with $1 Million from an accumulation account – made up of $400,000 Tax-Free and $600,000 Taxable Component, the pension will forever remain a 40% Tax-Free 60% Taxable pension, with all earnings within the account allocated proportionately and all withdrawals made proportionately.

Note: Thresholds are based on the financial year that this article is dated. As most of these thresholds are indexed, they may be different if you are viewing this article in a future year.

Tax on Taxable (Taxed) Component

 
The Taxable (taxed) Component of a superannuation benefit is taxed as follows when withdrawn as a lump sum or pension income stream payment:

 

Tax on Taxable (Untaxed) Component

 
The Taxable (untaxed) Component of a superannuation benefit is taxed as follows when withdrawn as a lump sum or pension income stream payment:

 

Tax on Taxable Component Death Benefit Paid to Dependent

 
The Taxable Component of a superannuation benefit is taxed as follows when paid as a death benefit to a Dependent. A Dependent for tax purposes includes a spouse (including former spouse, de-facto or same-sex), a child under age 18, a financial dependant or a person in an interdependency relationship with the deceased.

Tax on Taxable Component Death Benefit Paid to Non-Dependent

The Taxable Component of a superannuation benefit is taxed as follows when paid as a death benefit to a Non-Dependant. A Non-Dependant for tax purposes includes anyone who is not a Dependant for tax purposes.

Medicare Levy also applies to all tax rates above that exceed 0%.