For most retirees aged 60 and over, super withdrawals are completely tax-free. However, the tax treatment of super withdrawals depends on your age, the type of payment, and the components of your super balance. Understanding these components is important, particularly for those accessing super before 60.
The Two Super Components
Every super account consists of two components that are tracked separately:
1. Tax-free component This is the portion of your super that has never been subject to tax inside the fund. It includes:
- Non-concessional (after-tax) contributions you have made yourself
- Certain government contributions (co-contributions, some rollovers)
Withdrawals from the tax-free component are always tax-free — at any age.
2. Taxable component This is the portion of your super that has been subject to concessions inside the fund. It includes:
- Employer SG contributions (taxed at 15% inside the fund when contributed)
- Salary sacrifice contributions (taxed at 15% inside the fund)
- Investment earnings accumulated inside the fund
The taxable component has two sub-elements:
- Taxed element: Where contributions tax and earnings tax were paid at 15% inside the fund (the vast majority of accounts)
- Untaxed element: Where no contributions tax was paid — mainly government sector defined benefit funds (not common in private sector super)
When you make a withdrawal, the tax treatment is applied proportionally — you cannot choose to withdraw entirely from one component.
Tax Treatment by Age — Lump Sum Withdrawals
Age 60 and over — from a taxed fund
Tax-free component: Tax-free Taxable component (taxed element): Tax-free
For almost all retirees aged 60 and over drawing from a private sector industry, retail, or SMSF fund, the entire withdrawal is tax-free. This is the most common scenario.
Age 60 and over — from an untaxed fund (e.g. some government schemes)
Taxable component (untaxed element): Taxed at marginal rate, with a 10% offset — up to the untaxed plan cap ($1.65M for FY2025–26), then at 47%
This primarily affects government employees drawing from older defined benefit schemes.
Preservation age to age 59 — from a taxed fund
Once you have met your preservation age (between 57 and 60, depending on your date of birth) and a condition of release, you can access super. Tax on lump sums:
Tax-free component: Tax-free
Taxable component (taxed element):
- First $235,000 (the low-rate cap for FY2025–26): Taxed at 0% (no tax)
- Above $235,000: Taxed at 15% (plus 2% Medicare levy)
The low-rate cap is a lifetime limit, not an annual one. Once you use up your $235,000 cap (across multiple withdrawals if applicable), subsequent taxable withdrawals before age 60 are taxed at 15%.
Under preservation age — from a taxed fund
Withdrawals before preservation age are rare and only available in limited circumstances (severe financial hardship, terminal medical condition, etc.). Tax treatment:
Tax-free component: Tax-free
Taxable component (taxed element): Taxed at 20% (plus 2% Medicare levy), regardless of the amount
Summary Table — Tax on Lump Sum Withdrawals
| Age | Tax-Free Component | Taxable — Taxed Element |
|---|---|---|
| Under preservation age | 0% | 22% (20% + 2% Medicare) |
| Preservation age to 59 | 0% | First $235k: 0% / Above $235k: 17% |
| 60 and over (taxed fund) | 0% | 0% |
| 60 and over (untaxed fund) | 0% | Marginal rate less 10% offset |
Tax on Pension Payments (Account-Based Pension)
For those taking their super as an income stream rather than a lump sum:
Age 60 and over: Pension payments are completely tax-free — they are not included in assessable income. No tax return entry required for the pension income itself.
Under 60: Pension payments are assessable income. However:
- The tax-free component of each payment is not assessable
- The taxable component of each payment is assessable income — but you receive a 15% tax offset on the taxable portion
- In many cases, this results in low or zero tax on pension income below 60, especially at lower income levels
Why Tax-Free After 60? — The Rationale
Contributions and earnings inside super have already been taxed at 15% during the accumulation phase. The tax-free status at withdrawal (age 60+) is designed to ensure the retirement savings are not taxed twice — once going in at 15%, and again coming out at marginal rates.
The concession recognises that superannuation is a long-term, locked-in savings vehicle and that the concessional tax treatment is the incentive for individuals to contribute.
When It’s Not Tax-Free — Edge Cases
Defined benefit funds: Some older government sector defined benefit schemes have untaxed elements. Recipients should check with their fund.
Death benefit to non-tax-dependants: When super passes to non-tax-dependants (e.g. adult children who are not financially dependent) after death, the taxable component is taxed at 17% (15% + 2% Medicare) even if the deceased was over 60. This is why estate planning with super components (recontribution strategy) can be valuable.
Division 296 tax: For individuals with total super balances above $3 million, an additional 15% tax on notional earnings attributed to the balance above $3M applies from 1 July 2025. See the Division 296 Tax guide.
Frequently Asked Questions
My super has always been in a balanced industry fund — is my entire withdrawal tax-free at 60? Yes — virtually all private sector super funds (AustralianSuper, Hostplus, Aware Super, etc.) are “taxed” funds. All withdrawals after age 60 from these funds are tax-free, regardless of the amount.
I have $400,000 in super and I’m 58 — how much tax would I pay on a withdrawal? It depends on the components. The tax-free component withdraws at 0%. The taxable component: the first $235,000 (the low-rate cap) is 0%; anything above is 17%. If most of your $400,000 is taxable and you take it all at once, the last $165,000 above the low-rate cap would be taxed at 17%. Waiting until age 60 eliminates this entirely.
Do I include super pension income in my tax return? If you are 60 and over, no — tax-free pension income from a taxed fund does not need to be reported in your tax return. If you are under 60, you include the assessable (taxable) component of pension payments in your return and apply the 15% offset.
See also: Retirement Income. For further guidance, see the ATO’s super withdrawal tax guidance. For advice tailored to your situation, speak with a licensed financial adviser or registered tax agent.