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Understanding Superannuation Tax Rates

While Australians may recognise the term superannuation, there exists a prevalent gap in understanding it in detail. This blog aims to bring understanding to your superannuation tax rates to help navigate superannuation with confidence.

Superannuation is a cornerstone of Australia’s retirement savings system, providing financial security for you during your post-work years. Think of your super as a bucket of money you keep adding to that will one day provide you an income after you’ve finished your working life. Like everything you earn, this will get taxed. It’s important to understand superannuation tax rates so you know how to maximise the wealth you can create in your super.

How is Super Taxed?

There are three ways that super is taxed – yes 3! These are set out below:

  1. On Contributions (remember that word, we’ll come back to it)
  2. The earnings of your super fund
  3. On Withdrawal.

Let’s take a look at each way in more detail.

Superannuation Contributions

A Contribution is what your employer pays into your super for you each month or quarter. This is base on your earnings and is a set percentage of your wages. In 2024 the rate is 11% and this moving up to 12% on the 1st of July 2025.

Every time your employer pays a Contribution into your super fund, the government taxes you 15% of it. Yep, you only see 85% of your super. If you’re a high income earner, you pay up to 30% of you super contributions in tax.

Let’s look at an example. Caleb owns a small business selling ice creams and employs Alex. During the July 2023 – September 2023 quarter Caleb paid Alex $10,000 in a wages.

Caleb calculates the minimum super contribution for Alex for the quarter:

  • $10,000 × 11% = $1,100.

Caleb contributes $1,100 to Alex’s super fund by the quarterly due date of 28 October 2023.

Alex’s super fund accepts the Contribution and pays 15%, or $165 to the ATO for superannuation tax.

Super fund Investment Earnings

Your super fund is designed to increase your retirement wealth. Most funds have a range of investment options from “conservative”, generally low risk low return investments to “high risk”, which will fluctuate up and down over time and are generally invested in global equity markets.

When your superfund increases in value, those increases are taxed.

To follow on from the example above, let’s say that Alex has $50,000 in her superfund. Her super has an excellent year and increases by $5,000 (or 10% return) in value. Alex’s super fund would pay $750 (15%) of this increase in value to the ATO leaving her fund with a $4,250 increase for the year (or 8.5% return).

This example assumes that Alex is in her accumulation phase.

What is the Accumulation Phase of Super?

The accumulation phase is when you are working. In other words, you’re building your super balance. Every time you get paid your employer is putting away money for your super and once a month or quarter, it is paid to your super fund. Once you hit a certain age and stop working, your move into Pension phase.

What is Pension Phase?

Pension Phase kicks in at a certain age depending on when you were born. It’s basically in your 60s and Moneysmart has an excellent calculator for working out your exact pension age. Unfortunately this author can’t touch his super until he’s 67!

This is the phase where you’re no longer contributing to your super, your withdrawing amounts to live.

Super Withdrawal Tax

This is an absolute minefield to navigate and we recommend taking advice in relation to withdrawing superannuation.

Early super withdrawal for severe financial hardship is administered by Services Australia. For information, please see the Services Australia website.

There are no special tax rates for a super withdrawal due to severe financial hardship. Withdrawals are paid and taxed as a normal super lump sum. Generally between 17% and 22% tax rates.

Super withdrawals are taxed differently depending on the different tax components that make up your super balance. These are;

  • Tax-free
  • Taxable / taxed
  • Taxable / untaxed

The below table provide the tax rates of withdrawals for each component exclusive of the Medicare levy.

Tax componentAgeMaximum tax rate
Taxable (taxed element)  Under preservation age20%1
Preservation age to 59Up to $235,000 – 0% Above $235,000 – 15%1
 Age 60+Tax-free
Taxable (untaxed element)Under preservation age  Up to $1,705,000 – 30%1 Above $1,705,000 – 45%1
Preservation age to 59Up to $235,000 – 15%1 Between $235,000 and $1,705,000 – 30%1 Above $1,705,000 – 45%1
Aged 60+ Up to $1,705,000 – 15%1 Above $1,705,000 – 45%1

Other reasons to withdraw super may be:

  • Incapacity,
  • Terminal medical condition, or
  • Compassionate grounds.

We won’t go into the tax treatment of each in this blog.

If you’re leaving the country permanently, check out our blog on how to access your super.

One Click Life can assist!

Working with an online tax agent like One Click Life can help minimise the stress involved with Superannuation taxes.

One Click Life provides easy-to-use online tax returns. There are also free tools to help you manage your life admin all in one easy to use platform. Included are free meetings with our team of tax professionals to help you with your super. Wills, mortgages, health insurance, and taxes can all take a lot of time and effort. One Click Life gives you a hassle-free method to arrange, monitor, and manage all your life’s administrative tasks in one location.

This article is for general information only. It does not make recommendations, nor does it provide advice to address your personal circumstances. To make an informed decision, always contact a registered tax professional.