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Is superannuation taxable income?
04 July 2022
From figuring out what income you’ll be taxed on to claiming work deductions, tax returns can sometimes feel a bit daunting. Here are some tips on how income tax interacts with superannuation in Australia, including whether your super contributions count as taxable income.
What is taxable income?
Taxable income is the money you make during a financial year that you have to pay income tax on. According to the ATO, this can be calculated by taking your ‘assessable income’ and then subtracting any deductions you’re allowed to claim. The ATO says your assessable income can include things like:
- your salary and wages
- bonuses, overtime and commissions
- tips, gratuities and other payments for your services
- interest from bank accounts
- dividends, rent and other income from investments
- pensions.
You may be able to claim tax deductions for costs you’ve incurred that are directly related to your income, which could include work-related costs like vehicle and travel or home office expenses. If you successfully claim a tax deduction, this means the cost of that expense is taken off your total taxable income, reducing the overall tax you have to pay.
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Is super included in your taxable income?
No, the money paid into your super account is not included as part of your taxable income, according to the ATO. This means it is not included or reported as income when you lodge your income tax return at the end of the financial year.
This means, for example, that if your employer paid you a salary of $75,000 plus your compulsory super guarantee payments and you received no other income during the financial year, then your assessable income would simply be $75,000, not $75,000 plus super.
However, super contributions themselves are taxed separately.
How is super taxed?
It should be noted that most super contributions themselves are taxed in one way or another, according to the ATO.
However, the questions of if, when and how a particular contribution is taxed will depend on factors like whether it was made from your before-tax or after-tax income, whether you exceed one or both of the super contribution caps, and your level of income.
How are concessional super contributions taxed?
Before-tax super contributions, or ‘concessional contributions’, are generally taxed at 15% at the time they are received by your super fund. This is less than most marginal income tax rates, meaning most workers are likely to pay less tax on their concessional contributions than on their regular income. Concessional contributions include compulsory employer contributions and salary sacrifice payments you make to your super account from your pre-tax income.
According to the ATO, if you’re a low income earner ($37,000 or less at the time of writing) in a particular financial year, the low income super tax offset (LISTO) will apply, so that any tax paid on these concessional super contributions will be automatically added back into your super account, up to a cap of $500 per financial year.
Bear in mind, the LISTO is different from the similarly named low income tax offset (LITO) and low and middle income tax offset (LMITO), which don’t specifically relate to super.
On the other hand, high income earners (those with a combined annual income and super contributions of more than $250,000), must pay either an additional 15% tax on their concessional contributions or the amount in excess of the current $250,000 threshold, whichever is less. In addition, the ATO says if you do not take your excess concessional contributions out of your super fund, you could be taxed up to 94% on them, depending on your circumstances.
Learn more: What is the low and middle income tax offset?
How are non-concessional contributions taxed?
The ATO’s advice is that after-tax super contributions, also known as ‘non-concessional contributions’, are not usually taxed when received by your super fund.
However, the ATO also states that if your after-tax contributions exceed the cap for a particular financial year, you can then choose to either withdraw the excess amount and have it assessed as part of your taxable income, or leave it in your super account and let it be taxed at the high rate of 47%. According to the ATO, non-concessional super contributions include contributions made from your after-tax income, contributions made by a spouse to your super fund, and personal contributions not claimed as an income tax deduction.
If you’re interested in finding a super fund based on your needs, you can compare a range of providers and funds with Canstar.
Compare Superannuation with Canstar
The table below displays some of the superannuation funds currently available on Canstar’s database for Australians aged 30 to 39 with a super balance of up to $55,000. The results shown are sorted by Star Rating (highest to lowest) and then by 5 year return (highest to lowest). Performance figures shown reflect net investment performance, i.e. net of investment tax, investment management fees and the applicable administration fees based on an account balance of $50,000. To learn more about performance information, click here. Consider the Target Market Determination (TMD) before making a purchase decision. Contact the product issuer directly for a copy of the TMD. Use Canstar’s superannuation comparison selector to view a wider range of super funds. Canstar may earn a fee for referrals.
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Original article by Tamika Seeto.
Main image source: VectorHot/Shutterstock.com
This article was reviewed by our Sub Editor Jacqueline Belesky before it was updated, as part of our fact-checking process.
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