Taxation of superannuation in Australia

Superannuation in Australia is taxed by the Australian taxation system at three points: on contributions received by a superannuation fund, on investment income earned by the fund, and on benefits paid by the fund.

Superannuation contributions are either concessional or non concessional contributions. Concessional contributions (sometimes referred to as "before tax" contributions) are contributions for which someone (such as an employer) has or will receive a tax deduction. Concessional contributions include superannuation guarantee (SG) contributions, salary sacrifice contributions, other employer contributions and contributions claimed as a personal tax deduction. Concessional contributions are taxed in the fund. While taxable components do not change the tax payable by the superannuation fund, they may be a factor in calculating the tax payable on withdrawals from a super fund. Non concessional contributions (also referred to as "undeducted" or "after tax" contributions) are contributions for which no one has or will receive a tax deduction. Non concessional contributions are, generally, not taxed in the fund.

Contributions to superannuation funds are subject to two types of "caps", and a third has been proposed in the 2016 federal budget. The annual concessional contributions cap since 2014/15 has been $30,000, with the cap for people over the age of 49 at the start of each year being $35,000. Concessional contributions are assessable income of the fund taxed at 15%. In the 2016 federal budget, the government proposed to reduce, effective 1 July 2016, the annual before tax contributions limit to $25,000. Since 2014/15, the annual non concessional contributions cap was $180,000 (or $540,000 in a three year period under the bring forward rule), up from $150,000 and $450,000 previously. Non concessional contributions under the "non concessional contributions cap" are not taxed in the fund. No discount or adjustment is available if an asset is sold at a loss. Capital losses can only be applied against capital gains and cannot be claimed against other income, but may be carried forward to the next year and applied against the later year's capital gains.

The taxable income of a superannuation fund is the fund's assessable income less allowable deductions. Assessable income includes concessional (i. e., taxable) contributions received, net investment income and discounted capital gains. It does not include exempt income and undeducted contributions. Undeducted contributions are those which the employer or the member cannot or has chosen not to claim as a deduction from their respective assessable income.

The taxable income of a superannuation fund is taxed at a flat rate of 15%; however, concessional contributions of those members whose taxable income exceeds $300,000 are subject to a rate of 30%. In the 2016 federal budget, the government proposed to reduce, effective 1 July 2017, the threshold when the tax rate of 30% comes in to members whose taxable income exceeds $250,000. In reality, the actual average tax rate can be lower than this, typically around 6.5%, because:

the dividend imputation system allows a credit for imputation credits on Australian shares, which may result in a tax refund. capital gains on assets held more than 12 months may be entitled to a capital gain tax discount. other tax credits such as foreign tax credits may apply. Additional taxes are payable if contributions received exceed the applicable contribution caps.

If the taxable income includes dividend income, any imputation credits attached to those dividends form part of the fund income, either assessable or exempt. In either case, the fund is entitled to a tax credit for the imputation credits as if they are a credit for tax paid by the fund. If the credits exceed the fund's tax liability, the excess is refundable.

Personal (nonconcessional, after tax) contributions by members whose taxable income is less than $35,454 will attract a government "co contribution" of 50c for each $1 contributed, up to a total of $500. The co contribution shades out and stops entirely when the member's taxable income exceeds $50,454.