The way super contributions are taxed depends on:

• whether they are made using concessional contributions (before tax) or non-concessional contributions (after-tax income);
  
  
• whether you exceed the concessional (before-tax) or non-concessional (after-tax) contribution caps
  
  
• Your income level - additional tax may apply if you are a high-income earner (Div 293 tax)

Concessional (before-tax) contributions

A super before-tax contribution includes employer super guarantee payments and salary sacrifice contributions. These contributions are generally taxed at a concessional rate when they enter your super fund, rather than being taxed at your personal income tax rate.

This concessional treatment is one of the key tax features of super. However, annual contribution caps apply, and additional tax may apply if these limits are exceeded.

Non-concessional (after-tax) contributions

A super after-tax contribution is made from income that has already been taxed, such as personal savings contributed to super.

These contributions are generally not taxed when they enter the fund, provided they remain within the relevant caps. After-tax contributions can increase your super balance without attracting additional tax when the contribution is made.

Government co-contributions and offsets

In some situations, the government may provide incentives to support super savings, such as co-contributions or tax offsets. Eligibility depends on income levels and contribution type, and these arrangements are subject to change.

While super remains in the accumulation phase, investment earnings are generally taxed at a concessional rate.

This applies to income such as interest, dividends and capital gains generated within the fund. In some cases, capital gains on assets held for longer periods may receive further concessions. The overall tax on super earnings depends on the fund structure and the type of income earned.

This concessional tax environment is designed to support the long-term growth of retirement savings.

The tax treatment of super changes when you start accessing your super. Whether tax applies depends on your age, how you access the money, and the components of your super balance.

Accessing super before preservation age

Access to super before preservation age[SB1]  is limited and generally only permitted in specific circumstances. Where early access is allowed, tax may apply and can be higher than for withdrawals made later in life.

Accessing super after preservation age

Once preservation age is reached, super can usually be accessed as a lump sum, an income stream, or a combination of both. Depending on your age and the structure of your super, withdrawals may be taxed at concessional rates or may be tax-free.

This is often the stage where people begin to focus more closely on how super is taxed in retirement.

Tax on super pensions vs lump sums

Super can be accessed either as a pension-style income stream or as a lump sum. The tax treatment can differ between these options, depending on age and the taxable and tax-free components of your balance. Understanding these differences can help explain why some access methods are treated differently for tax purposes.

Once super moves into the retirement phase, additional tax concessions may apply.

Investment earnings on assets supporting a retirement income stream may be tax-free, subject to balance limits. Withdrawals made after certain age thresholds may also be tax-free. Super tax in retirement is structured to support income needs later in life, though specific rules and thresholds apply.

When a super account holder dies, their super is generally paid to beneficiaries as a death benefit.

The tax treatment depends on whether the beneficiary is considered a tax dependant for super purposes. Death benefits paid to tax dependents are generally tax-free. Benefits paid to non-dependants may be taxed, depending on the components of the super balance and how the benefit is paid.

Tax treatment can also differ if the benefit is paid as a lump sum or as an income stream.