05.Contribution limits and tax
While investment earnings outside super are taxed at your marginal tax rate (up to 46.5%), with super you’ll pay:
- 0% tax on the way in if you make an after-tax contribution.
- The tax on pre-tax contributions, such as employer and salary sacrifice payments, is 15%.
- 15% on the earnings (growth) of your fund, deducted automatically. Often, the actual tax applied is less, after concessions.
- And no tax applies to fund growth in the pension phase (after you retire).
- 0% on withdrawal Since 1 July 2007 benefits (withdrawals) paid from taxed super funds to most people aged 60 or older are completely tax-free, whether taken as a regular income or a lump sum. However, some funds don’t qualify, such as Commonwealth Government funds and some state government super funds.
Super’s principal attraction is lower tax — unless you invest too much. Briefly, here are the rules if you are aged 50-plus and trying to get as much as possible into super before retiring:
- Pre-tax contributions: these contributions, for which a tax deduction has been claimed by an employer or self-employed person (and include the employer’s 9% super guarantee payments), are taxed at 15% on the way into your fund.
- The annual limit on contributions (including the 9% super guarantee) is $50,000 — except people aged 50 and over, who can contribute up to $100,000 pa, indexed annually for inflation, until July 2012, when the $50,000 limit applies again, plus an allowance for inflation.
- If you exceed these limits, a 31.5% penalty tax applies (in addition to the usual 15% tax). After-tax contributions These are not taxed on the way in, unless you exceed the limit. The limit is $150,000 pa for over 65s who satisfy the work test. Under 65s can contribute up to $450,000 over a three-year period. Conditions apply. Over 75s can’t contribute to super. The penalty tax if limits are exceeded is 46.5%.
Go to Australian Taxation Office website for more information about tax and superannuation.