Superannuation has its own tax system — separate from ordinary income tax — designed to encourage Australians to save for retirement. Tax applies at three distinct points: when money goes in (contributions), while money is inside the fund (earnings), and when money comes out (withdrawals). Generally, each stage is taxed at a concessional rate, with many withdrawals being completely tax-free for those aged 60 and over.
1. Tax on Contributions — Going In
Concessional (Pre-Tax) Contributions — 15% Tax
Concessional contributions (CCs) are contributions made from pre-tax money. They include:
- Employer SG contributions (12% of ordinary time earnings from 1 July 2025)
- Salary sacrifice contributions
- Personal contributions where you claim a tax deduction (via a Section 290 Notice of Intent)
Tax rate: 15% — paid by the super fund, not you directly. This appears on your annual super statement as “contributions tax”.
The CC cap: $30,000 per financial year (FY2025–26). Contributions within this cap are taxed at 15%. Excess CCs are included in your assessable income and taxed at your marginal rate, with a 15% offset to avoid double taxation. See Excess Concessional Contributions.
The benefit: If your marginal income tax rate is 32.5%, 37%, or 45%, having your super contribution taxed at only 15% provides a significant tax saving — the difference between your marginal rate and 15%.
Division 293 Tax — 30% for High Earners
If your income (including concessional contributions) exceeds $250,000 in a financial year, your concessional contributions are subject to an additional 15% tax — called Division 293 tax — bringing the effective rate to 30% (15% standard + 15% Division 293).
Division 293 does not eliminate the super concession — your contributions are still taxed more favourably than ordinary income for those at the 47% marginal rate, but the gap is smaller.
The ATO calculates and assesses Division 293 tax. Payment can be made personally or released from your super fund.
Non-Concessional (After-Tax) Contributions — No Tax Inside Super
Non-concessional contributions (NCCs) are made from after-tax money — they are not deducted from income. Because tax has already been paid on this money, no further contributions tax applies when it enters the fund.
The NCC cap: $120,000 per financial year (FY2025–26), or up to $360,000 over three years using the bring-forward rule. Excess NCCs attract 47% penalty tax. See Excess Non-Concessional Contributions.
Government Co-Contribution — No Tax
The government co-contribution (for low-income earners making personal non-concessional contributions) is paid directly into super with no contributions tax applied.
2. Tax on Earnings — Inside the Fund
Accumulation Phase — 15% on Earnings
While your super is in the accumulation phase (before you start a pension), investment earnings inside the fund are taxed at a maximum rate of 15%. This includes:
- Interest income
- Dividends (after franking credits, which often reduce the effective rate significantly)
- Rental income from property
- Realised capital gains
CGT discount in super: If the fund holds an asset for more than 12 months before selling, a one-third CGT discount applies — reducing the effective rate on capital gains to 10%.
Franking credits: Australian shares often come with franking credits attached to dividends. Super funds can use these to offset tax — in practice, many super funds pay well below 15% effective tax on earnings due to franking credits. SMSF members with high Australian share allocations may see negative tax liability in some years (franking credit refunds).
Pension Phase — 0% on Earnings (under $3M)
When you move your super into a pension account (account-based pension), investment earnings are taxed at 0% — completely tax-free. This is the most generous aspect of the super tax system.
The earnings exemption applies to pension balances within the Transfer Balance Cap ($2.0M for FY2025–26). The amount above the TBC remains in accumulation phase and continues to be taxed at 15%.
Capital gains in pension phase: 0% — even short-term gains. There is no holding period requirement in pension phase.
Division 296 — Additional Tax on Balances Over $3 Million
From 1 July 2025, an additional 15% tax applies to earnings attributable to super balances above $3 million (across all accounts, measured as total super balance — TSB).
This brings the effective rate on earnings attributed to the over-$3M portion to 30% (15% in accumulation, or effectively 15% additional on top of pension phase).
Critically, “earnings” for Division 296 are calculated by a formula (not actual returns) and include unrealised capital gains — the increase in account value regardless of whether assets were sold. This is a significant design feature. See Division 296 Tax for the full explanation.
The $3 million threshold is not indexed to inflation.
3. Tax on Withdrawals — Coming Out
Age 60 and Over — Tax-Free
For individuals aged 60 and over drawing from a taxed fund (virtually all private sector industry, retail, and SMSF funds):
- Lump sums: Completely tax-free, regardless of amount
- Pension payments: Completely tax-free, not included in assessable income
This applies to both the tax-free and taxable components.
Preservation Age to 59 — Low-Rate Cap Applies
Withdrawals before age 60 (but after preservation age) are taxed depending on the amount:
- Tax-free component: Always 0%
- Taxable component: First $235,000 (the low-rate cap, FY2025–26) at 0%; amount above the low-rate cap at 15% (plus 2% Medicare levy)
The low-rate cap is a lifetime amount.
Under Preservation Age — Limited Access
Access before preservation age is restricted to specific conditions of release. If accessed, the taxable component is taxed at 22% (20% + 2% Medicare levy).
Summary Table — Super Tax at a Glance
| Stage | Tax Rate |
|---|---|
| Concessional contributions (standard) | 15% |
| Concessional contributions (income >$250k — Div 293) | 30% |
| Non-concessional contributions | 0% |
| Earnings — accumulation phase | 15% (10% for CGT with discount) |
| Earnings — pension phase (under $3M) | 0% |
| Earnings — Div 296 (over $3M, from 1 July 2025) | Additional 15% |
| Withdrawal — age 60+, taxed fund | 0% |
| Withdrawal — preservation age to 59, up to low-rate cap ($235k) | 0% |
| Withdrawal — preservation age to 59, above low-rate cap | 17% |
| Withdrawal — under preservation age | 22% |
Frequently Asked Questions
Why is super taxed at 15% instead of my income tax rate? The 15% concessional rate is a deliberate government incentive to encourage retirement saving. Without the concession, money sent to super (especially employer SG contributions) would be taxed at your full marginal rate. The lower rate reflects the fact that super is locked away until retirement and helps take pressure off the Age Pension system.
My super fund paid 15% tax on earnings — why wasn’t it zero? Earnings are taxed at 15% only in accumulation phase. Once you start an account-based pension with your super, earnings on the pension account become tax-free. If you are still working and haven’t started a pension, your fund is in accumulation phase and pays 15% tax on earnings.
What is LISTO and how does it interact with contributions tax? The Low-Income Super Tax Offset (LISTO) is a government payment of up to $500 into the super accounts of low-income earners who have had concessional contributions taxed at 15% — a rate that may exceed their marginal income tax rate. See LISTO explained.
For guidance on your personal tax position, speak with a registered tax agent or licensed financial adviser. See the ATO’s super tax overview for official rules.