If you've been reading our blogs for a little while now, you may have picked up on the fact that we're big fans of superannuation. Yes, the Government keeps fiddling with it and yes, you have to wait a long time to get at it. But despite these downsides, superannuation is still the best tax haven we've got for long-term investing. For this week's update, we're giving you a little bit of background on the very close relationship between your superannuation and how it's taxed.
As explained on the Moneysmart website, everything you need to know about Super and Tax is as follows:
1. How Super Contributions are taxed
The amount of tax you'll pay on your super contributions depends on the type of contribution and your personal circumstances.
2. Employer and salary sacrificed contributions
Also known as concessional contributions, employer and salary sacrificed super contributions are taxed at 15% when they are received by your super fund. The current limit on this type of contribution is $25,000 per year.
3. Personal contributions
After-tax personal contributions and those received by the fund from the money you're deemed to have already paid tax on and are therefore not taxed when they are put into your super fund. The current annual limit on this type of contribution is $100,000 in most cases.
4. How Investment Earnings are taxed
Income which is earned in the fund (investment earnings) is taxed at a maximum rate of 15%. Capital gains on assets held for longer than 12 months within the fund will be taxed at 10%. The amount of tax your fund pays can be reduced by tax deductions or tax credits. For example, a growth fund may only pay an average of 7% tax because its dividend income entitles it to tax credits.
5. How Super Withdrawals are taxed
It may feel like you've had to wait a long time, but there are certainly some tax benefits when it comes to finally accessing your super. When you become eligible to access your super you can take a super income stream to provide you with a regular income, or you can withdraw all or part of your benefit as a lump sum.
6. Super income streams
The tax treatment of super income streams depends on whether you're over or under age 60, still working or permanently retired. If you are aged 60 or over your income will usually be tax-free. If you are under age 60 you may pay tax on your super pension.
7. Lump sum withdrawals
If you are aged 60 or over any withdrawals from a taxed super fund are tax-free. Different rates may apply to untaxed funds, such as government super funds. If you access your super before age 60 you may pay tax on withdrawals. You can withdraw up to the low rate threshold, currently $200,000, tax-free. This is a lifetime limit and is indexed annually. The threshold does not include the tax-free portion of your super account, which will be returned to you tax-free. Any amounts over the low rate threshold will be taxed at 17% (including Medicare Levy) or your marginal tax rate, whichever is lower.
As you can see from the above outline, there's quite a bit of consideration that needs to go into accessing your super. For this reason, we suggest getting us involved if you have any questions on this or other topics, we're only an email or phone call away.