When you withdraw money from superannuation in Australia, the tax you pay depends on two things: your age and the tax components of your super benefit. Understanding these components helps you plan withdrawals and understand why different super withdrawals are taxed differently.
The Two Tax Components
Every super balance (accumulation or pension) consists of two components:
1. Tax-Free Component
Money that has already been taxed outside super (or was always tax-free). It originates from:
- Non-concessional contributions (after-tax personal contributions)
- Certain structured settlements and personal injury payments
- Pre-July 1983 service for some older defined benefit schemes
When you withdraw the tax-free component, there is no tax — regardless of your age.
2. Taxable Component
The remainder of your super balance. It arises from:
- Concessional contributions (employer SG, salary sacrifice, personal deductible contributions) — these entered super with only 15% fund tax, leaving the remainder “taxable”
- Fund earnings (investment returns) — taxed at 15% in the fund, but the member’s portion of the benefit retains a taxable component
- Pre-tax contributions under older schemes
The taxable component is further divided into:
- Taxed element: Most super benefits — the amount that was taxed at 15% in the fund
- Untaxed element: Uncommon — mostly public sector schemes and some older defined benefit arrangements where contributions were not taxed in the fund
How Tax Components Affect Withdrawals
If You Are 60 or Older
| Component | Tax on lump sum | Tax on pension income |
|---|---|---|
| Tax-free | 0% | 0% |
| Taxable (taxed element) | 0% | 0% |
| Taxable (untaxed element) | Marginal rate minus 10% offset | Marginal rate minus 10% offset |
For most Australians over 60, super withdrawals are entirely tax-free (because most have a “taxed element” — normal fund contributions).
If You Are Preservation Age to 59
| Component | Tax on lump sum | Notes |
|---|---|---|
| Tax-free | 0% | Always tax-free |
| Taxable (taxed element) — up to low-rate cap | 0% | Low-rate cap: $235,000 (FY2024–25) |
| Taxable above low-rate cap | 17% + 2% Medicare = 19% | Effective 19% rate |
| Taxable (untaxed element) | 32% | Reduced rate |
The low-rate cap is a lifetime threshold — once you’ve withdrawn $235,000 in taxable super benefits, the concessional rate no longer applies.
Death Benefits
When super is paid as a death benefit:
- To a tax dependant (spouse, child under 18, financially dependent, interdependant): Tax-free
- To a non-tax dependant (adult independent child): 19% on the taxable component
How to Find Your Tax Components
Your super fund can provide the tax components of your benefit. The proportioning rule applies — if 30% of your balance is tax-free, then 30% of each withdrawal is tax-free and 70% is taxable. You cannot selectively withdraw one component.
Strategies Around Tax Components
- Non-concessional contributions increase the tax-free component: Particularly valuable if you are below 60 and expect to access super early (e.g., disability, hardship)
- Re-contribution strategy: For those over 60, withdrawing and re-contributing as non-concessional can increase the tax-free component — reducing the tax on eventual death benefits paid to non-tax dependants. Requires professional advice — complex strategy with several conditions.
For more: Super Withdrawal Tax, Division 293 Tax, Death Cover and Nominations. For advice tailored to your situation, speak with a licensed financial adviser via MoneySmart.