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and Taxable (untaxed) Component is that each of these components are treated differently for tax purposes when withdrawn from the superannuation accumulation or pension environments, including when a superannuation death benefit payment is made.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the Tax-Free Components is simple; it will always exit a superannuation account tax free, regardless of whether it is withdrawn as a lump sum, paid as a pension payment from an income stream, or paid to a beneficiary or estate as a death benefit payment.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:
How to Manage Your Super Without Paying a Financial Adviser
Download our 6-step checklist & take control of your super
– 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 all of the Non-Concessional (after-tax) Contributions that have been made to the account. these contributions make up the Tax-Free Component. You then deduct any withdrawals that have been made from the Tax-Free Component and whatever is remaining is the Taxable component.
Related Posts:
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:
| lump sum | ||
|---|---|---|
| Age | Taxable (taxed) Component of Withdrawal | Tax Rate (max) |
| 60 and over | Total Amount | 0% |
| Preservation Age to Age 59 | First $215 000 (lifetime amount – indexed) | 0% |
| Preservation Age to Age 59 | Balance Over $215 000 (lifetime-indexed) | 15% |
| Below Preservation Age | Total Amount | 20% |
| Pension | ||
|---|---|---|
| Age | Taxable (taxed) Component of Withdrawal | Tax Rate (max) |
| 60 and over | Total Amount | Not Subject to Tax |
| Preservation Age to Age 59 | Total Amount | MTR minus a 15% tax offset |
| Below Preservation Age | Total Amount | MTR – no tax offset |
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:
| lump sum | ||
|---|---|---|
| Age | Taxable (untaxed) Component of Withdrawal | Tax Rate (max) |
| 60 and over | First $1.565M (lifetime amount – indexed) | 15% |
| 60 and over | Balance over $1.565M | 45% |
| Preservation Age to Age 59 | First $215 000 (lifetime amount – indexed) | 15% |
| Preservation Age to Age 59 | $215 000 – $1.565M (lifetime – indexed) | 30% |
| Preservation Age to Age 59 | Balance over $1.565M (lifetime-indexed) | 45% |
| Below Preservation Age | First $1.565M (lifetime – indexed) | 30% |
| Below Preservation Age | Balance over $1.565M (lifetime – indexed) | 45% |
| Pension | ||
|---|---|---|
| Age | Taxable (untaxed) Component of Withdrawal | Tax Rate (max) |
| 60 and over | Total Amount | MTR – minus a 10% tax offset |
| Preservation Age to Age 59 | Total Amount | MTR – no tax offset |
| Below Preservation Age | Total Amount | MTR – no tax offset |
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.
| Age of Deceased | Type Of Benefit | Age of Beneficiary | Tax on Taxable Component |
|---|---|---|---|
| Any age | Lump sum | Any age | Not subject to tax |
| Age 60 and above | Income stream | Age 60 and above | (taxed) component: not subject to tax; (untaxed) component: MTR minus 10% tax offset |
| Under age 60 | Income stream | Age 60 and above | (taxed) component: not subject to tax; (untaxed) component: MTR minus 10% tax offset |
| Under age 60 | Income stream | Under age 60 | Taxed component: MTR less 15% tax offset; (untaxed) component: MTR |
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.
| Age of Deceased | Type Of Benefit | Age of Beneficiary | Tax on Taxable Component |
|---|---|---|---|
| Any age | Lump sum | Any age | (taxed) component: 15%; (untaxed) component: 30% |
| Any age | Income stream | Any age | Not permitted post 1 July 2007. Pre-July 2007 death benefit income streams taxed the same as if paid to a dependant |
Medicare Levy also applies to all tax rates above that exceed 0%.
How to Manage Your Super Without Paying a Financial Adviser
Download our 6-step checklist & take control of your super
Hi Chris, my Super consists of a large amount of rolled in contributions from my wife when she was earning a very large salary, and hence these amounts were taxed before they were rolled in at 30%, not the usual 15%. Are those already higher taxed contributions also taxed at MTR less 10% when taking an income from them when over 60?
So if after I’m 60, my marginal tax rate is 45%, I would still be paying another 35% tax after the 10% offset, meaning overall that money has been taxed at first 30%, then at 35% when taken as income?
Or have I got this completely wrong?
Hi John, I’m not quite sure how your wife’s contributions became part of your super? However, generally, contributions that were taxed upon entry to super (taxable (taxed)) are not taxed when withdrawn from super over age 60 – only when under age 60. If under age 60, taxable (taxed) contributions are taxed at the recipients marginal tax rate, less a 15% offset.
Based on your age, presumed income and large super balance, I would strongly suggest obtaining professional personal financial advice prior to implementing any strategies to ensure you are not only taking advantage of all opportunities available to you, but also to ensure you don’t make any costly errors.
Regards,
Chris
Hi Chris, you’re right, I don’t understand it at all. My wife received approx $40k per year in Super from her employer (far more than they were required to pay). She then rolled in 85% of her max Super allotment (usually $25k) into my Super account. I think I do need some advice, I’m reading above that there is tax payable on some Super pension, even if I’m over 60? I thought all Super pensions was tax-free after 60? I don’t get it.
Hi John,
Okay, this makes more sense. Her contributions were transferred to you under the spouse split provisions.
Generally, payments from super over age 60 are tax free. However, in some instances tax may be payable, depending on the tax components that make up your balance.
I don’t believe the portion transferred from your wife will incur tax upon withdrawal.
If you like, feel free to contact us to arrange a free 15-minute obligation free chat to see if personal advice would be suitable for you https://www.torowealth.com.au
Regards,
Chris
Hi Chris
I withdraw a lump sum from my superannuation account via telephone.
I was not asked if this amount was to be included as part of my compulsory income stream !
Has my fund acted appropriately? As I assumed it would account as part of my pension/income stream
Thank you
Hi Jennifer,
A lump sum withdrawal from a pension account can be made as a ‘partial pension commutation’ or as a ‘one-off increased pension payment’. I am unable to comment on whether your super fund has acted appropriately or not. I suggest you refer to your super fund’s Financial Services Guide and follow their complaints resolution process if you are not happy with what has occurred.
I hope your issue gets resolved.
Regards,
Chris
Related Post
What is a Pension Commutation?