Superannuation doesn’t have to be complicated. Here you will find information on how super works, who is eligible, how it is taxed and more.
In simple terms, superannuation (super for short) is a way to save for your retirement. It’s compulsory for employers to contribute towards their employees super under Australian law, so it pays to know how it works.
How super works
While you are working your employer is required to pay contributions into your super fund (providing you satisfy the definition of an ‘eligible employee’ outlined below). These contributions are called the Super Guarantee (SG). Currently the SG rate is 9.5% of your salary. The rate will remain at 9.5% until 1 July 2021, when it will increase to 10%.
You can also make extra contributions and top up your super by salary sacrificing (pre-tax contributions), making after tax contributions, and/or consolidating your super accounts.
Most super funds, like WA Super, then invests the money according to your investment choice, or if you have not made a choice, in the ‘default’ investment option. Investment returns, which can be positive or negative, are added or deducted from your account together with administration fees and investment fees, insurance costs and taxes.
Who is eligible?
To be eligible to receive the SG you must be working full-time, part-time or casual and paid more than $450 (before tax) each month. If you are under 18, you must work more than 30 hours a week.
Accessing your super
Super is a long term investment and is generally only meant to be accessed when you retire. In order to withdraw some, or all, of your super, you need to meet a condition of release, such as retirement on or after your preservation age, death, or permanent disability. Find out more here.
Find out more
Have you provided your Tax File Number?
No one likes paying more tax than they have to, so you may want to provide your Tax File Number (TFN) to your super fund. Providing your TFN is optional, but it could save you a lot of money.
If your super fund doesn’t have your TFN, the Australian Taxation Office (ATO) requires the super fund to deduct 47% tax on all your concessional contributions and, the super fund won’t be able to accept any non-concessional contributions from you.
When is super taxed?
Your super might be subject to tax at three stages; when contributions go into your account, on investment earnings in your account and when you withdraw your money.
Concessional contributions (or ‘before-tax’ contributions) are paid into your super before tax and include:
- Compulsory SG contributions made by your employer
- Salary sacrifice contributions
- Any personal contributions for which you notify us of your intention to claim as an income tax deduction
Concessional (before-tax) contributions are taxed at 15% at the time the contribution is made into your super fund.
The Australian Government has set limits on the amount of contributions you can make each year without having to pay additional tax. The concessional (before-tax) contributions cap for 2018/2019 is $25,000. From 1 July 2018, you can ‘carry-forward’ your concessional super contributions if your total super balance is less than $500,000. You will be able to access your unused concessional contribution cap space on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.
Non-concessional contributions (or ‘after-tax contributions’) are voluntary contributions and include contributions made by:
- members from after-tax income
- a spouse
Non-concessional (after-tax) contributions are not usually taxed unless you exceed the non-concessional cap of $100,000* for the 2018/2019 financial year. A tax of 47% will apply to the excess.
* If you are under 65 years, you may make non-concessional contributions of up to three times the annual non-concessional contributions cap in a single year by bringing forward your non-concessional contributions cap for a two- or three-year period. If eligible, when you make contributions greater than the annual cap, you automatically gain access to future-year caps. This is known as the ‘bring-forward’ arrangement.
Investment earnings are taxed up to 15% in a super fund. Tax payable on earnings from Australian and International shares may be reduced by imputation and foreign tax credits. Capital gains tax of 10% is payable on any investment held for more than 12 months. Investment earnings tax is usually deducted before crediting rates are applied to your account.
If you’re 60 or over, you can withdraw your super as either a lump sum or an income stream and not pay any tax.
If you are under age 60, your benefit consists of two components – a tax-free and a taxable component. The taxable component is made up of a taxed and untaxed amount (this is discussed in greater detail later on).
For lump sum withdrawals (includes Medicare levy)
|Age||Amount of tax payable on taxable component|
|60 and over||Nil|
|55 to 59||Tax-free up to $205,000 (for 2018/2019) and up to 17% on any excess amount|
|Under 55||22% (or your marginal tax rate if that is lower)|
If your taxable income was over $180,000 a temporary budget repair levy may have applied from 1 July 2014 to 30 June 2017.
Tax components of super benefits
A tax-free component is the part of a benefit that is tax-free and does not count towards your assessable (or taxable) income.
A taxable component is the part of the benefit that is taxable. It may include two parts, called taxed and untaxed elements respectively.
To work out how your super payout is taxed, you need to understand how the taxed and untaxed elements of the taxable component are treated.
A taxed element is the super that has already had tax paid on it in the fund. It may or may not need to have additional tax paid on it once it is withdrawn. You may still need to include the taxed element in your tax return.
- An untaxed element is the part of your payout that hasn’t had any tax paid on it in the fund, but which is still taxable. It must be included in your tax return as assessable income.
As super is a long term investment designed to be accessed when you retire, the Government has placed restrictions on when you can access your super. You can access your super when you meet your preservation age and retire; or you meet another condition of release.
Meeting your preservation age
Preservation is a restriction the Government has put in place to make sure everyone saves for their retirement. If you have reached your preservation age and have permanently retired from the workforce and never intend to be gainfully employed for 10 or more hours per week, you can access your super.
Your preservation age depends on when you were born:
|Date of birth||Preservation age|
|After 30 June 1964||60|
|1 July 1963 to 30 June 1964||59|
|1 July 1962 to 30 June 1963||58|
|1 July 1961 to 30 June 1962||57|
|1 July 1960 to 30 June 1961||56|
|Before 1 July 1960||55|
Other conditions of release
In addition to reaching your preservation age and retiring, there are other conditions which will allow you to access some or all of your super. You meet a condition of release if you:
- Attain 65 years old (even if you haven’t retired;
- Become permanently disabled;
- Meet the legal requirements for severe financial hardship;
- Meet the compassionate grounds requirement as assessed by the Department of Human Services;
- Leave employment and your super has a restricted non-preserved component;
- Leave your employment and your preserved benefit is less than $200;
- Are a temporary resident holding an eligible class of visa and have permanently left Australia;
- Suffer from a terminal medical condition; or
- You have an unrestricted/unpreserved amount.
How to withdraw your super
If you have met a condition of release, your super may be paid as either an income stream or lump sum amount.
This is a paid promotion by WA Local Government Superannuation Plan Pty Ltd, as Trustee of the WA Local Government Superannuation Plan (WA Super). Other than payment for advertising, no commissions or other fees are payable to NZRelo. Information provided here will change from time to time, is general in nature and not tailored to your personal and financial situation. You should consider if the information is appropriate to you. Before making a decision about WA Super, you should read the Product Disclosure Statement available at www.wasuper.com.au or by contacting the Fund on (08) 9480 3500. All applications must be made and received in Australia. WA Super is the trading name of WA Local Government Superannuation Plan ABN 18 159 499 614 and its Trustee is WA Local Government Superannuation Plan Pty Ltd ABN 64 066 797 162, AFSL 269006.