The tax treatment of superannuation withdrawals in Australia depends on three factors: your age, whether the withdrawal is a lump sum or income stream, and the components (tax-free vs taxable) of your super balance. For most Australians aged 60 and over, super withdrawals are completely tax-free.
The Two Components of Your Super Balance
Every super account balance consists of two components:
| Component | Source | Tax on withdrawal |
|---|---|---|
| Tax-free component | After-tax contributions (non-concessional), government co-contributions | Never taxed — at any age |
| Taxable component | Employer SG, salary sacrifice, personal deductible contributions (all taxed at 15% on entry) | Taxed depending on age |
The taxable component is sometimes further split into:
- Taxed element: Most Australians’ super — contributions taxed at 15% inside the fund
- Untaxed element: Found in some government unfunded defined benefit schemes
Tax on Super Withdrawals by Age
Under preservation age — highly taxed
Accessing super before preservation age is only permitted in limited circumstances. If accessible:
- Tax-free component: Tax-free
- Taxable component (taxed element): 20% + 2% Medicare levy (effective 22%)
Preservation age to age 59
The low rate cap applies:
- Tax-free component: Tax-free
- Taxable component (taxed element): Tax-free up to the low rate cap (~$235,000 in FY2025–26); excess taxed at 15% + 2% Medicare levy
- The low rate cap is a lifetime amount — once used, it cannot be refreshed
Age 60 and over — Tax-Free for Most
Lump sums and income stream (pension) payments from a taxed super fund are entirely tax-free at age 60+.
This is the single most significant tax benefit available to Australian retirees. Regardless of the amount withdrawn — whether $10,000 or $1 million — there is no income tax on super withdrawals from a taxed fund for those aged 60+.
Exception: Untaxed element (uncommon — mainly some government defined benefit schemes) — taxed at marginal rate minus 10% offset after age 60.
Age 65 and Over
Same treatment as age 60 — fully tax-free from a taxed fund.
Tax on Pension Payments vs Lump Sum
| Withdrawal type | Age 60+ tax | Preservation age to 59 |
|---|---|---|
| Account-based pension payments | Tax-free | Taxable (with 15% offset) |
| Lump sum | Tax-free | Low rate cap applies |
Earnings Tax Inside Super
While your super is building up, the fund itself pays tax:
- Accumulation phase: 15% on investment earnings; 10% on capital gains (discounted from 15% if asset held >12 months)
- Pension phase: 0% on investment earnings — completely tax-free
This 0% earnings tax in pension phase is why keeping funds in super as long as possible (up to the $1.9m transfer balance cap) is generally tax-optimal.
Death Benefits and Tax
When super is paid as a death benefit:
- To a tax dependant (spouse, children under 18, financial dependants): Generally tax-free
- To a non-dependant (adult children, other beneficiaries): The taxable component is taxed at 15% + 2% Medicare levy (17%)
This is why super beneficiary nominations are important for estate planning — the tax treatment varies significantly based on who receives the benefit.
Related Articles
- Account-Based Pension Australia
- Lump Sum vs Pension at Retirement
- When Can I Access My Super?
- Concessional Contributions Australia
- Retirement Investing hub
Frequently Asked Questions
Is super tax-free at 60 in Australia? Yes — for most Australians with a standard (taxed) super fund, lump sum withdrawals and pension income payments are completely tax-free from age 60 onwards. This applies to both the tax-free and taxable components of your super.
Does super count as income at tax time? For those aged 60+, super pension income and lump sum withdrawals from a taxed fund are not included in your taxable income — they do not appear on your tax return as assessable income. For those under 60, pension payments from super may be partially assessable.
What is the low rate cap? The low rate cap (~$235,000 in FY2025–26) is a lifetime limit on the taxable component of super that can be withdrawn tax-free between preservation age and age 60. It is indexed annually.
This article provides general financial information only. Super tax rules are complex and may change. For advice tailored to your situation, speak with a licensed financial adviser through the ASIC financial advisers register or MoneySmart.