We’ve put together a comprehensive guide to Superannuation to help prepare your financial future. In this guide, you’ll learn about the different types of super funds, how contributions work, what to consider as you approach retirement, and how pensions can support your income in later life. Whether you’re just starting to think about super or refining your strategy, this guide is here to help you make informed, long-term decisions. If you’re based in Melbourne and would like tailored advice from a financial advisor, you can book a no-obligation initial consult with our team at Progressive Financial Solutions.
Superannuation Basics
What is Superannuation, and how does it work?
Superannuation (or super) is basically your future self’s paycheque. It is a tax-advantaged way of saving money while you are working, allowing you to live comfortably in retirement.
Your employer is required to pay a percentage of your salary into your super fund. You can also add extra money yourself, either before or after tax. Your superannuation is invested in various assets, including shares, property, and bonds. Over time, it grows through returns and compounding.
You can’t access your Super until you meet the release condition, but the earlier you start and the smarter your investment choices, the more freedom you will have later on.
What is the current superannuation rate in Australia, and how is it calculated?
The current superannuation guarantee rate in Australia is 12.00% of your Ordinary Times Earnings (OTE). This amount includes any commissions or bonuses you receive, but typically does not include overtime or reimbursements.
That means if you earn $100,000 a year, your employer must contribute $12,000 into your super fund.
If you’re self-employed, no one’s doing this for you — but you can make your own contributions and even claim a tax deduction for them.
How is super paid, and how often should employers contribute?
Super is paid directly into your nominated super fund by your employer – you don’t need to do anything to receive it.
Currently, employers are required to pay your superannuation guarantee at least every quarter. On 9 October 2025, the Government introduced Payday Super legislation into parliament which would require employers to pay your superannuation guarantee at the same time as your salary and wages. This measure is not law as of yet.
You can always check if your employer’s keeping up by logging into your super fund’s app or online portal. Payments should appear there within a few days of being made to the ATO.
What are the different types of superannuation funds available?
There are a few main types of super funds – and the best fit really depends on how hands-on you want to be with your money:
Industry Superannuation Fund
- Usually open for anyone to join, though some are restricted to specific industries.
- These includes funds like AustralianSuper, Hostplus and Cbus Super.
- Low fees
- Limited investment options.
Retail Funds
- Typically run by banks or investment companies.
- These include funds like AMP, Colonial First State or BT.
- Membership in these funds are open to anyone
- Provide a wide range of investment options adding more choice to members
- Often come with slightly higher fees.
Public Sector Funds
- Designed for employees of Federal and State government departments, most public sector funds are exclusive to government employees.
- These funds include Commonwealth Superannuation Corporation (CSC)
- Generally have very low fees
- Select investment options.
- Many long-term members have defined benefits, and newer members are usually in an accumulation fund.
Corporate Superannuation Funds
- Offered by some large employers exclusively for their staff.
- Funds run by the employer or an industry fund will return all profits to members. Corporate funds run by retail companies will retain some profits;
- May offer a wide range of investment options;
- Cost may vary
- Some older corporate funds have defined benefit members, most others are accumulation funds.
Self Managed Superannuation Funds
- These are DIY Superannuation Funds for people who want full control and have the time to manage their funds appropriately.
- Regulated by the Australian Taxation Office (ATO)
- An SMSF can have one to four members.
- Each member is a trustee (or director if there is a corporate trustee).
- Must have a trust deed, investment strategy and the fund complete tax returns yearly.
How do I find, manage or consolidate my super accounts?
You are able to find your superannuation accounts by logging into your myGov Account and linking it to the Australian Taxation Office (ATO). You will be able to see all your superannuation accounts that you hold in one place.
You are able to manage your superannation also on the myGov sight. Before consolidating any superannuation you have it is important that you consider all aspects including but not limited to, fees, performance, investment options and importantly insurances that you hold within the fund.
Are there penalties for not paying into a super?
If an employer doesn’t pay the required superannuation guarantee in full, on time or to the correct fund, the will be required to pay the Super Guarantee Charge (SGC) and will be required to lodge an SGC statement.
The Super Guarantee Charge (SGC) includes unpaid superannuation amounts, interest for the time it’s been overdue and an administration fee of $20 for every employee, every quarter.
Unlike normal super payments, the SGC isn’t tax-deductible for the employer – so it’s an expensive mistake.
Superannuation Contributions and Taxation of Superannuation
Can I contribute to superannuation myself?
Yes, you are able to contribute into superannuation yourself. You can make contributions to your superannuation fund can be made from pre-tax dollars (Concessional Contributions) and from after-tax dollars (Non-Concessional Contributions).
What are the different types of superannuation contributions?
Concessional Contributions
Concessional Contributions (also referred to as pre-tax contributions) include:
- Employer super guarantee contributions (12.00% for the 2025-2026 financial year)
- Salary Sacrifice Arrangements you might enter into
- Personal Contributions where you claim a personal tax deduction.
- Contributions you make for relatives (other than your spouse) and your children over 18, whether or not you are eligible to claim a tax deduction.
Concessional Contributions Cap
The concessional contributions cap limits the concessional contributions you make to super. For the 2025/2026 financial year, your concessional contribution cap is $30,000 per annum.
|
Financial Year
|
Cap Amount
|
|---|---|
|
2025-26
|
$30,000
|
|
2024-25
|
$30,000
|
|
2023-24
|
$27,500
|
|
2022-23
|
$27,500
|
|
2021-22
|
$27,500
|
|
2020-21
|
$25,000
|
|
2019-20
|
$25,000
|
|
2018-19
|
$25,000
|
The basic concessional contributions cap is indexed to average weekly ordinary time earnings (AWOTE) each financial year but only increases in increments of $2,500.
Concessional Contribution Carry Forward Rule
The Concessional Contribution Carry Forward Rule is a handy way to catch up on super contributions you didn’t make in previous years and get an extra tax benefit while you’re at it.
Here’s how it works:
If your total super balance is under $500,000 at the end of the last financial year, you can carry forward any unused concessional (before-tax) contribution cap from the past five financial years.
Elaine has a total superannuation balance of less than $500,000 as at 30 June 2024.
Her employer made concessional contributions of $8,000 in the 2024-25 financial year. She also made a personal tax-deductible contribution of $2,000, bringing her concessional contributions for the year to $10,000.
Elaine’s unused concessional contribution cap is $20,000 (i.e. $30,000, less $10,000).
She can carry the unused portion of her concessional contribution cap forward for up to 5 years.
This means that in 2025-26, her concessional contributions that could be made, provided her total superannuation balance as at 30 June 2025 was less than $500,000, are $50,000 (the basic $30,000 concessional contribution cap, plus $20,000 carried forward from 2024-25).
Note: For the sake of simplicity, the unused concessional contribution cap from years prior to 2024-25 have been ignored in this example.
Eligibility to make Concesional Contributions
|
Age
|
Contribution Requirements
|
|---|---|
|
Under age 18
|
If they have derived income during the year from employment or carrying on a business.
|
|
Between age 67 and 74
|
Need to meet work test
|
|
Age 75 and over
|
Concessional contributions cannot generally be made after the 28th day of the month following that in which a person turns 75
|
The Work Test (for ages 67-74)
If you’re aged 67 to 74 and want to make extra contributions to your Super, you’ll need to meet what’s known as the Work Test.
To meet this requirement, you must have been gainfully employed for at least 40 hours within a 30-day period during the financial year before making your contribution. This work should generally be completed before you contribute.
Your employer’s compulsory super contributions – like the Super Guarantee – can still be made regardless of your age.
Excess concessional contributions
If you go over your concessional contribution cap, the Australian Taxation Office (ATO) will issue what’s called an Excess Concessional Contribution Determination.
When this happens, the excess amount is added to your assessable income and taxed at your marginal tax rate. Because your super fund has already paid 15% tax on those contributions, you’ll receive a non-refundable 15% tax offset.
You can also choose to have up to 85% of the excess amount released from your super fund to help pay the extra tax. If you decide not to withdraw the excess, it will automatically count toward your non-concessional (after-tax) contribution cap instead.
Salary sacrifice arrangements
A salary sacrifice arrangement is when you agree to give up part of your take home pay in exchange for your employer contributing that amount into your Super instead.
To be effective, a few key rules apply:
- The arrangement must be set up before you’ve earned the income
- There must be a formal agreement between you and your employer
Salary sacrificing is a simple and tax-smart way to boost your Super while reducing your taxable income.
For example:
If you earn $80,000 a year and choose to salary sacrifice $100 a week ($5,200 a year) into your Super, your PAYG tax could drop by around $1,664 a year.
After allowing for 15% contributions tax ($780) inside your Super, you’re still ahead by roughly $884 in total tax savings — and you’ve grown your retirement savings at the same time.
Low Income superannuation tax offset (LISTO)
If you are a low-income earner, with an adjusted taxable income of less than $37,000, you can be eligible for the low income superannuation tax offset (LISTO).
This offset effectively refunds the 15% contributions tax your super fund pays on your before-tax (concessional) contributions-up to $500 per year. It’s calculated on the first $3,333 of your concessional contributions and is automatically credited to your super account by the ATO.
To qualify, at least 10% of your income must come from employment or self-employment.
Non-Concessional Contributions
Non-concessional contributions are contributions made to your Super from after-tax money – that is, income you’ve already paid tax on.
These can include:
- Personal contributions made from your savings or regular income
- Contributions made on behalf of a spouse or child under 18
You can fund these contributions from savings, investment sales, inheritances, gifts, or windfalls – essentially any money that’s already yours after tax.
Non-concessional contributions can generally be made up until the 28th day after the month you turn 75.
Non-Concessional Contributions Cap
The non-concessional contributions cap limits the non-concessional contributions you can make to your Super.
The non-concessional contribution cap for the 2025/2026 financial year is $120,000 per annum. However, you may be able to make up to three years of contributions in a single year using the three-year bring forward rule.
You can only make non-concessional contributions if your total superannuation balance is less than $2.0m.
|
Financial Year
|
Cap Amount
|
If Total Superannuation Balance is:
|
|---|---|---|
|
2025-26
|
$120,000
|
Less than $2.0 million at 30 June 2025
|
|
2024-25
|
$120,000
|
Less than $1.9 million at 30 June 2024
|
|
2023-24
|
$110,000
|
Less than $1.9 million at 30 June 2023
|
Total Superannuation Balance
Your total superannuation balance is the total value of all your super accounts as at 30 June of the previous financial year. This includes money held in both accumulation accounts and pension or income stream accounts.
If you’re a member of a defined benefit fund or a constitutionally protected fund, special rules apply to calculate your total balance.
Three-year bring forward rule
You can use the bring-forward rule to make up to three years’ worth of non-concessional (after-tax) contributions in one go.
For the 2025/2026 financial year, that means you could contribute up to $360,000 – instead of being limited to the standard $120,000 annual cap.
The bring-forward rule is automatically triggered when your non-concessional contributions exceed $120,000 in one financial year. Once triggered, you’ll have up to three years to use the rest of your cap.
If your balance is $1.76 million or more, the amount you can contribute under the bring-forward rule is gradually reduced.
|
Total Superannuation Balance
|
Maximum Non-Concessional Contribution
|
|---|---|
|
Less than $1,760,000
|
$120,000 + 2 years = $360,000
|
|
$1,760,000 to $1,880,000
|
$120,000 + 1 year = $240,000
|
|
$1,880,000 to $2,000,000
|
$120,000
|
|
$2,000,000 or more
|
$0
|
To utilise the bring forward rule, you must be under 75 years old at any time during the financial year,
Exceeding the Non-Concessional Contributions cap
If you exceed your non-concessional (after-tax) contribution cap, the Australian Taxation Office (ATO) will issue an Excess Non-Concessional Contribution Determination.
You will have the option to withdraw the excess amount along with any associated investment earnings. Those earnings will be taxed at your marginal tax rate, but you will receive a 15% tax offset to recognise the tax already paid by your super fund.
If you don’t make this election within 60 days of the ATO’s notice, the excess amount will be taxed at 47%.
If no action is taken, the ATO can direct your super fund to release the excess amount on your behalf to resolve the issue.
Benefits of Non-Concessional Contributions
Making non-concessional contributions to your superannuation can increase your retirement savings and add to your tax-free component.
This may result in you receiving a tax-free lump sum and income stream benefits from your fund. If you, pass away, the tax-free portion of your accumulated savings is tax-free when paid to your legal personal representative (i.e., your Estate) or directly to other non-dependant beneficiaries.
You may be eligible to receive a Government co-contribution and/or the spouse contribution tax offset if you make a non-concessional contribution.
Downsizer Contributions
If you are aged 55 or over and decide to sell your main residence, you can contribute up to $300,000 of the sale proceeds into your Super without being limited by the usual age rules or contribution caps.
These are called downsizer contributions, and they come with their own set of eligibility criteria. The key benefit is that they’re separate from your concessional and non-concessional contribution limits, meaning you can add to your Super even if you have already reached those caps.
How do Downsizer Contributions work?
To be eligible to make downsizer contributions, you need to meet several criteria:
- You must be aged 55 or above,
- Your contributions should come from the sale of a property that was your main residence for capital gains tax purposes at some point during your ownership,
- You, or your spouse, must have owned the residence for no less than 10 years,
- You must make the contribution of up to $300,000 from the sale proceeds within 90 days following the change of ownership (settlement),
- You should not have previously made a downsizer contribution.
Qualifying residence rule
For your sale proceeds to qualify as a downsizer contribution, the property sold must, at some time during its ownership, have qualified for a capital gains tax exemption as your main residence or that of your spouse.
Thus, sale proceeds originating from commercial properties, or investment properties that never qualified as your main residence for capital gains tax purposes, are ineligible for downsizer contributions.
A qualifying residence does not include houseboats, caravans, or mobile homes.
Opting for a downsizer contribution requires selling a qualifying property. However, you don’t need to purchase another residence afterwards. For instance, if you plan to rent, move into a retirement village or aged care facility, or live with family post-sale, you are still eligible to make a downsizer contribution.
How are downsizer contributions treated?
A downsizer contribution will form part of your tax-free component within your superannuation, meaning it is not taxed upon contribution to your super fund.
While downsizer contributions do not count as non-concessional contributions, they contribute to your total super balance.
Downsizer Contributions and Transfer balance cap and taxation
The transfer balance cap, currently set at $2.0 million, limits how much you can move into a super income stream or pension.
This means that while you can still make a downsizer contribution of up to $300,000, you can’t transfer it into a pension account if you’ve already reached your transfer balance cap. In that case, the contribution must stay in your accumulation account, where investment earnings are taxed at 15%.
By comparison, once money is in the retirement (pension) phase, investment earnings are tax-free inside the fund.
It’s also worth noting that earnings in an accumulation account form part of your taxable component, which can have tax implications if your Super is paid to a non-tax dependent (such as an adult child) when you pass away.
If your downsizer contribution is used to start a retirement-phase pension, the earnings instead become tax-free and form part of your tax-free component.
Downsizer Contributions and Social Security
Your main residence is usually exempt from the assets and income tests used by Centrelink and the Department of Veterans’ Affairs to assess eligibility for the Age Pension or other benefits.
However, when you sell your home, the sale proceeds are treated differently. If you place the leftover funds in a bank account, invest them elsewhere, or even make a downsizer contribution to Super, that money will generally count towards your assets and income tests.
This could lead to a reduction or loss of pension entitlements, depending on how much you contribute and how those funds are invested.
How is superannuation taxed?
Super is one of the most tax-effective ways to build wealth — but it’s not completely tax-free. Here’s how it works:
Taxation of concessional contributions
Concessional contributions are treated as assessable income of the super fund to which they are made. They are taxed within the fund at a rate of 15%.
Div 293 Tax
If you earn more than $250,000 a year, you’ll pay an extra 15% tax on your concessional (before-tax) contributions, known as Division 293 tax.
Unlike the usual 15% tax that’s deducted by your super fund, Division 293 tax is charged to you personally by the ATO. You are able to pay your Div 293 tax from your own money or by releasing money from Super.
For Division 293 purposes, your income includes more than just your salary — it also takes into account things like taxable income, family trust distributions, reportable fringe benefits, net investment losses, and your concessional contributions (also known as ‘low-tax contributions’).
These ‘low-tax contributions’ refer to amounts within your concessional contributions cap – and don’t include any excess contributions you’ve made above the limit.
Taxation of Non-Concessional Contributions
When you make a non-concessional (after-tax) contribution to your super fund, it isn’t taxed on the way in – because the money has already been taxed before you contributed it.
Non-concessional contributions form part of your tax-free component within Super. When the tax-free component is paid out as either a lump sum or as an income stream, the benefit is tax-free in your hands.
Any investment earnings your fund earns on these contributions are treated a little differently:
- While your fund is in the accumulation phase, those earnings are added to your taxable component.
- Once your fund starts paying an income stream (pension), those earnings are split between your taxable and tax-free components based on your overall proportions.
Superannuation Earnings
The investment income your super fund earns (from things like shares or property) is usually taxed at 15%.
Capital gains are also taxed at 15%, but your fund gets a one-third discount if the investment was held for more than 12 months – bringing the effective tax rate down to 10%.
Accessing Your Superannuation
When can I access my Super, and what are the rules based on my age?
You can only access your money in superannuation once you meet a condition of release.
Condition of Release
You reach a condition of release when you have reached preservation age and have retired or ceased an employment arrangement or when you reach age 65, regardless of your employment status.
The preservation age is 55 for people born before 1 July 1960. For those born after that date, the preservation age is progressively increasing to 60 years of age, as set out in the following table:
|
Date of Birth
|
Preservation Age
|
|---|---|
|
1 July 1960 – 30 June 1961
|
56
|
|
1 July 1961 – 30 June 1962
|
57
|
|
1 July 1962 – 30 June 1963
|
58
|
|
1 July 1963 – 30 June 1964
|
59
|
|
After 30 June 1964
|
60
|
Other conditions of release include death, and special circumstances such as incapacity, severe financial hardship, compassionate grounds, terminal medical condition.
Can I withdraw my Super before retirement, under what conditions, and is it a good idea?
You are able to access your superannuation before retirement through a Transition to Retirement (TTR) Pension. You must have reached preservation age to access a Transition to Retirement (TTR) Pension.
Transition to Retirement Pensions
Once you have reached your preservation age (between 55 and 60, depending on when you were born), you may be able to start a Transition to Retirement (TTR) income stream even if you’re still working.
A TTR income stream allows you to draw a regular income from your Super while continuing to build your super balance through ongoing employer contributions. It can be started with your preserved benefits or a mix of preserved and non-preserved amounts.
Once you turn 65, or if you meet a condition of release (such as retiring or leaving the workforce), your TTR income stream automatically converts into a retirement-phase pension. From that point, the earnings on your investments become tax-free, just like a standard account-based pension.
Transition to Retirement Income Payments
With a Transition to Retirement (TTR) income stream, you have flexibility in how much income you draw each financial year giving you control to match your lifestyle and cashflow needs.
The rules only require that at least one payment is made each financial year, and that you withdraw a minimum amount based on a set percentage of your account balance (calculated at 1 July each year).
If your income stream starts part-way through the year or is stopped (commuted) before year-end, the minimum payment is pro-rated for that period.
|
Age
|
Income Factor (2023-24)
|
|---|---|
|
Under 65
|
4%
|
For a TTR pension, the maximum income you can opt for is 10% of the account balance, and no lump sum withdrawals are allowed..
Your TTR pension continues until your account balance runs out, or until you decide to roll the funds back into accumulation phase or start a different pension account.
You can commute (stop) your TTR pension at any time, and have the remaining balance transferred back to your accumulation account — keeping your money invested and compounding for the future.
Taxation of Income from a TTR Pension
Any withdrawal you make from a pension will be split into taxable and tax-free components, maintaining the same ratio as when the pension commenced. The tax on each component is contingent on your age, as outlined below:
|
Age
|
Component
|
Taxation Treatment
|
|---|---|---|
|
Any age
|
Tax-free
|
No tax
|
|
60 or older
|
Taxable – taxed element
Taxable – untaxed element |
No tax
Marginal tax rate*, less 10% offset |
|
Under age 60
|
Taxable – taxed element
Taxable – untaxed element |
Marginal tax rate*, less 15% tax offset
Marginal tax rate* |
* Plus, Medicare Levy
Earnings added to your pension account are taxed at the same rate as those that apply to the accumulation phase of superannuation.
What documents do I need to access my Super, and how long does it take to be released?
When you’re ready (and eligible) to access your Super, your fund will need a few key documents to process the withdrawal:
- Proof of identity -such as your driver’s licence, passport, or birth certificate.
- Completed withdrawal or pension application form – provided by your super fund (often online)
- Proof of condition of release – for example, confirmation of your retirement, reaching preservation age, or evidence for an early access claim (such as medical or financial hardship documents)
- Bank account details – where you want the payment sent (it must be in your name).
Once everything’s submitted, withdrawal time is dependant on the superannuation fund, but normally allow a few business days
Can I put money back into my Super?
Yes, you are able to contribute into Super through concessional and non-concessional contributions subject to certain requirements.
For Concessional Contributions
- If you are under age 67, there are no requirements.
- If you are between age 67 and 74, you need to meet the work test.
- Concessional contributions cannot generally be made after the 28th day of the month following that you turn age 75
You are able to make non-concessional contributions up until you turn age 75.
Superannuation and Property
Can I use my Super to buy a house?
In most cases, you can’t use your Super to buy a home while it’s still in your super fund – it is designed to support you in retirement, not for personal purchases like a house.
However, there are a few exceptions where super can help you get into the property market:
First Home Super Saver Scheme (FHSSS)
If you are looking to buy your first home, you are able to save for your deposit by making voluntary contributions, including non-concessional, personal deductible and salary sacrifice contributions into superannuation.
The scheme allows you to withdraw up to $50,000 of your contributions as well as associated earnings to help buy your first home.
The benefit is that your funds are invested in tax-sheltered environment (15% tax) while growing to provide for your first home deposit.
You are limited in making up to $15,000 per financial year in accessible voluntary contributions and $50,000 across all years.
When you’re ready to buy, you can apply to the ATO to release the funds, which are then transferred to your bank account for your home purchase.
The ‘FHSS maximum release amount’ is calculated as:
- 85% of concessional contributions (salary sacrifice or personal deductible contributions)
- 100% of non-concessional contributions
- associated earnings (using the shortfall interest charge (SIC); as a guide, the SIC rate for the July to September quarter of the 2025–26 financial year is 6.78% p.a.
To qualify, you must:
- Be 18 or older.
- Have never owned property in Australia before (with limited exceptions).
- Plan to live in the property for at least six months within the first 12 months of ownership.
Buying Property through Self-Managed Super Funds (SMSFs)
If you have an SMSF, you can use your Super to buy an investment property, but there are strict rules:
- The property must be purely for investment, not for you or your family to live in.
- It must meet the sole purpose test — meaning it’s used to grow your retirement savings, not provide personal benefit.
- Borrowing to buy property through an SMSF must follow limited recourse borrowing arrangement (LRBA) rules.
Superannuation and Retirement Planning
How much Super do I need to retire comfortably in Australia?
The short answer is: it depends on the lifestyle you want.
According to the Association of Superannuation Funds of Australia (ASFA), as a guide:
A comfortable retirement for a single person costs around $53,289 pa for singles and $75,319 pa for couples. (based on living an active, healthy lifestyle and owning your home outright)
To fund that level of income, ASFA estimates you’ll need roughly $595,000 for singles or $690,000 for couples in super at retirement, however this also depends on how your superannuation funds are invested, fees you are paying and any other costs.
Everyone’s situation is different. The level of funds you require at retirement depends on the retirement lifestyle you want to live, including travelling, replacement vehicles, home modifications, when you would like to retire as well as your financial position outside of superannuation.
Is it better to take a lump sum or a regular income stream in retirement?
It depends on your goals, spending habits, and how you want your money to work for you.
An income stream pays you a steady income from your Super to help provide for retirement expenses. The level of income you receive is flexible, as long as it mets the yearly minimum requirements.
A lump sum gives you immediate access to your money. You might use it to:
- Pay off your mortgage or other debts
- Buy a car or make home improvements
- Help your kids or grandkids financially
Superannuation Death Benefits
If you have a superannuation fund and pass away, any benefits you have within your Super must be cashed out as soon as reasonably possible.
When you pass away, your Super doesn’t automatically become part of your estate. However, you can choose to have your super death benefit included in your estate by completing either a binding or non-lapsing death benefit nomination in favor of your legal personal representative (LPR).
Who Can a Superannuation Death Benefit be paid to?
The superannuation death benefit can only be paid out to your dependents (as defined by superannuation law) or to your estate.
A dependent includes:
- Your current spouse (including de facto and same-sex partners),
- Any of your children (including adopted children or stepchildren from your current relationship),
- Someone with whom you had an interdependency relationship at the time of your death,
- Someone who was financially dependent on you at the time of your death.
If you don’t have any superannuation dependents or an estate, the super death benefit can be paid out to another person. It’s worth noting that a stepchild from a previous relationship (after a relationship breakdown or death) isn’t considered a dependent for superannuation purposes unless they were financially dependent on you or had an interdependency relationship with you.
An interdependency relationship is considered to exist if you and another person:
- Had a close personal relationship,
- Lived together (unless separation was due to disability),
- Each provided the other with financial support, and
- Each provided the other with domestic support and personal care.
How Can a Death Benefit be paid?
Your super death benefit can be paid as either a lump sum or an income stream, based on your superannuation fund’s rules and the beneficiary’s status.
If the benefit is paid to a child, an income stream (pension) can only continue if the child is under 18, or aged 18-25 and financially dependent on you, or meets disability criteria. Unless the child meets these criteria, the pension must stop and be converted into a lump sum when they reach 25. This lump sum is tax-free.
Death Benefit Nominations
There are two ways you can nominate a beneficiary for your super death benefit from the accumulation phase:
- Binding death benefit nomination, or
- Non-binding death benefit nomination
The option you can choose depends on what your superannuation fund allows.
Generally, the trustee of the fund has the discretion to decide who benefits are paid to, but a binding or reversionary nomination can override this discretion.
For a binding death benefit nomination to be effective, it must:
- Be made in writing,
- Be witnessed by two people over the age of 18 who are not beneficiaries,
- Nominate beneficiaries who are considered dependents under super law,
- Clearly allocate benefits among the beneficiaries,
- Be current (with many funds requiring renewal at least every three years, though some offer non-lapsing options).
For a self-managed super fund (SMSF), the rules regarding binding nominations might differ based on the fund’s trust deed.
A non-binding death benefit nomination indicates your preference for how the death benefit should be paid, but it’s not mandatory for the trustee to follow this. The trustee will consider your wishes but ultimately has the discretion to decide the beneficiary and the form of payment. If a binding nomination is deemed invalid, it’s treated as if it were a non-binding nomination.
If you have named a beneficiary as a reversionary pensioner, the income stream you were receiving will continue to be paid to them after your death.
How will my super be taxed when paid to my beneficiaries?
Dependant Beneficiary
Super death benefits paid as a lump sum are tax-free if going to a beneficiary who qualifies as a dependent for tax purposes. This includes:
- Your current or former spouse (including de facto and same-sex partners),
- A child under 18, or between 18-25 and in full-time education,
- Someone with whom you had an interdependency relationship at the time of your death,
- Someone who was financially dependent on you at the time of your death.
If the benefit is paid to your estate, the tax implications depend on who ultimately inherits the benefit. Super death benefits paid to adult children will be taxable unless the beneficiary qualifies as a dependent under the criteria mentioned.
Non-Dependant Beneficiary
The following table lists the tax rates payable on lump sum death benefits paid to a non-tax dependent beneficiary
The Medicare Levy, where applicable, will be additional if the benefit is paid directly to you by the deceased member’s superannuation fund. If the death benefit is channeled through the deceased’s estate for your ultimate benefit as a non-tax dependent beneficiary, you won’t be required to pay the Medicare Levy.
|
Component
|
Maximum Tax rate
|
|---|---|
|
Tax-free
|
Tax-free
|
|
Taxable – taxed element
|
15%
|
|
Taxable – untaxed element
|
30%
|
Should the death benefit be distributed to you as an income stream, the scenario changes depending on age considerations. If either the deceased or you are over age 60, the income payments you receive will be tax-free. However, if both are under age 60, the taxable portion of the income you receive will be taxed at your marginal tax rate, though you will benefit from a 15% tax offset. Take note; the tax rules might shift if the pension includes an element untaxed, such as those from some government superannuation funds.
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