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Paying tax on superannuation contributions

The amount of tax an individual pays on their super contributions depends on whether the contributions were made before or after they paid income tax; they have exceeded the super contributions cap or they are a very high-income earner.

Before-tax super contributions
Concessional (before-tax) super contributions are taxed at 15 per cent. They include employer contributions; contributions that are allowed as an income tax deduction and notional taxed contributions if you are a member of a defined benefit fund.
After-tax super contributions
Non-concessional (after-tax) super contributions are not subject to tax. They include contributions you or your employer make from your after-tax income; contributions your spouse makes to your super fund and personal contributions that are not claimed as an income tax deduction.
Excess contributions tax
There are limits on the amount of concessional and non-concessional contributions an individual can make each year, and these vary depending on the person’s age. Those who contribute too much to their super may have to pay extra tax. If they exceed the concessional super contributions cap, the excess is included in their income tax return and taxed at their marginal tax rate. Individuals can choose to withdraw some of the excess contributions to pay the additional tax.
Those who exceed the non-concessional super contributions cap can choose to withdraw the excess contributions and any earnings. The earnings are then included in their income tax assessment and taxed at your marginal rate. When individuals do not withdraw the earnings, the excess is taxed at 47 per cent.
Division 293 tax for very high-income earners
Division 293 tax is an additional tax on super contributions if a person’s combined income and super contributions are more than $300,000 a year. Division 293 tax is 15 per cent of a person’s taxable concessional contributions above the $300,000 threshold. For those who  are a member of a defined benefit fund, Division 293 tax may be calculated on notional contributions which are not capped.

Posted on 30 October '16 by , under Super.

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Transition to retirement

The transition to retirement (TTR) strategy allows you to access some of your super while you continue to work.

You are able to use the TTR strategy if you are aged 55 to 60. You can use it to supplement your income if you reduce your work hours or boost your super and save on tax while you keep working full time.

  • Starting a TTR pension: To start your TTR pension, transfer some of your super to an account-based pension. You have to keep some money in your super account so that you can continue to receive your employer's compulsory contributions as well as any voluntary contributions you may be making.
  • Government benefits and TTR: The benefits you or your partner receive might be impacted if you choose to opt for this strategy. How and what exactly will change might become clearer upon discussing this with a Financial Information Service (FIS) officer.
  • Life insurance and TTR: In some cases, the life insurance cover you have with your super may stop or reduce if you start a TTR pension – check this before making any decisions or changes.

TTR can help ease your mind as you transition into retirement but it can be a bit complex. Before you choose whether you want to use TTR to reduce work hours or save on tax, or even if you want to use TTR altogether, you should figure out how this will impact all aspects of your finances.

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