tax and super
tax and super: how it works
Your super may be taxed:
- when money arrives in your account
- on the investment earnings
- when you withdraw your super
- when you pass away (super death benefits)
Learn more about How super is taxed (pdf) or the limited circumstances where you may be eligible to access your super early.
tax when money is put into your account (also known as contributions)
The way super contributions are taxed depends on whether they’re paid with before or after-tax income.
Before-tax contributions (also known as concessional contributions)
Money paid into your super account by your employer (Superannuation Guarantee contributions) or as a salary sacrifice contribution is generally taxed at 15%.
As with everything in super (and life) – there are exceptions to this:
- Under the low-income super tax offset (LISTO), eligible low-income earners (earning $37,000 or less per year) may receive up to $500 from the government. If you’re eligible, the government will add the payment into your super account automatically. You don’t have to do anything to claim the offset.
- If you’re on a higher income: You will be taxed an extra 15% if your income and super concessional contributions combined are more than $250,000 per year.
You can find out about all the exceptions to the way before-tax contributions are taxed, including annual contribution limits, in the How super is taxed booklet (pdf).
Case study
How tax works when adding to your super using salary sacrifice
Jacob earns $85,000 per year and is looking to grow his wealth. He's able to find an extra $5,000 a year to support his goal. Let’s compare contributing $5,000 per year to his super using salary sacrifice to saving $5,000 each year outside of super. Salary sacrifice reduces your taxable income, so you may pay less income tax.
Jacob has a marginal tax rate of 32% (including the 2% Medicare levy) whereas his concessional super contributions are taxed at 15%, so he decides to contribute $5,000 per year to his super as a salary sacrifice. Making the contribution through salary sacrifice reduces the amount of tax he pays (as his taxable income has been reduced).
By contributing $5,000 per year to his super via salary sacrifice Jacob has:
- reduced the amount he pays in income tax by $1,600
- paid contributions tax of only 15% ($750)
- which has resulted in a net tax saving of $850.
This case study is for illustrative purposes only and is based on a taxable income of $85,000 for a person under age 60 during the 2024-25 financial year who has not exceeded their concessional contributions cap. Please consider seeking contribution advice to understand your own situation.
After-tax contributions (also known as non-concessional contributions)
Contributions made to your account from after-tax income (aka take-home pay) aren’t taxed again when they hit your super account. However, any investment earnings you receive on these contributions will be taxed.
After-tax contributions from your take-home pay can be a great way to increase your super balance and best of all – they can be claimed as a tax deduction when you're doing your tax return.
Case study
Get a tax deduction and grow your super savings with after-tax contributions
Alice is a HESTA member earning $60,000 per year. This financial year she makes an after-tax contribution of $2,000 to her super account.
Alice notifies HESTA that she intends to claim a tax deduction on her contribution. This means Alice will be able to claim a tax deduction for the $2,000 in her tax return, reducing her taxable income (income tax less deductions) to $58,000 for the year.
Alice’s marginal tax rate is 32%* (including the 2% Medicare levy), which means after claiming the tax deduction, she saves $340 in tax after the contributions tax of 15% is applied.
Please note the amount of the after-tax contributions claimed will change which contributions cap the funds apply to. We recommend seeking advice to ensure you do not exceed annual contribution caps.
You can learn more about taxable income on the moneysmart.gov.au website.
This case study is for illustrative purposes only and is based on a taxable income of $60,000 for a person under age 60 during the 2024-25 financial year who has not exceeded their concessional contributions cap.
tax on investment earnings
Any earnings made by the investments in your super or transition to retirement (TTR) account are generally taxed at 15%. That tax is deducted before the earnings are applied to your account.
When you fully retire and move your super into a Retirement Income Stream, investment earnings are no longer subject to tax, because you’ve earned it.
tax on death benefits
It’s not a nice topic, but it is important to understand how a death benefit is taxed. A super death benefit is paid when someone passes away. It’s usually paid to the person(s) they’ve nominated to receive their benefit if they die (the beneficiary).
The amount of tax paid by a death benefit beneficiary depends on:
- whether they’re a dependant for tax purposes
- the tax-free and taxable components of the super being paid out, and
- whether the beneficiary takes the benefit as an income stream or a lump sum.
The best place to find more information about tax on death benefits is on the ATO website.
Case study
The importance of choosing the right beneficiary for tax purposes
Robyn had a partner and daughter (aged 27 and living away from the family home) with half her assets held in super and half her assets held outside of super. She wanted to split her estate equally between the two of them and minimise tax where possible in the process. She makes a binding nomination in favour of her partner and then outlines in her will who receives the remainder of her estate.
As the partner is a dependant for tax purposes, they will receive the super benefit tax free.
The daughter then receives the remainder of the estate as Robyn has instructed under her will.
If the super nomination had been made 50/50, the partner would still receive their portion of the benefit tax free, however the daughter may pay tax of up to 17% on her portion of the benefit.
This story highlights the importance of ensuring you not only keep your death benefit nominations up-to-date, but that you understand who is a dependant for tax purposes. After all, the tax man receives enough of our hard-earned money during our lifetime — let’s make sure he doesn’t receive more unnecessarily when we’re gone.
other helpful things to know
Supply your tax file number
To ensure you don’t pay too much tax on contributions, make sure you supply your tax file number (TFN) to your super fund. If you don’t supply it, any before-tax contributions your employer makes to your super will be taxed at the top marginal tax rate, which you can see on the ATO website.
(Note, if you’ve paid too much tax on your super, the extra tax paid will be returned to your account once you supply your TFN within 3 years as long as you remain at the same fund. So it’s best to supply your TFN upfront!)
You can add your TFN in the 'Personal details' section of your online account.
We are authorised by law to ask for your TFN. You do not have to provide it, but if you don’t, you may end up paying more tax than you need to. You must supply your TFN to enable your HESTA account to accept after-tax contributions. Learn more about providing your tax file number.
Get advice
Everyone’s situation is different and it’s important you get the right advice about the effect of tax on your super.
Find out more about how we can help.
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