Access To Superannuation

Complying superannuation funds in Australia must not pay out benefits until a condition of release is met. Minimum conditions of release are specified by law, and each superannuation fund’s internal rules may set out additional requirements.

There are significant penalties for breaking the superannuation release rules. The Tax Office has issued warnings against promoters offering early release. See “Beware of offers to withdraw your super early

Superannuation release

Administering the release of superannuation and making sure the correct conditions are met is the responsibility of the Trustees of the super fund. Conditions for release are listed in Schedule 1 of the Superannuation Industry (Supervision) Regulations 1994.

Budget 2015: Terminally ill patients may get earlier tax-free access to their superannuation with effect from 1 July 2015 due to the extension of the qualifying life-expectancy period from 12 month to 2 years. See: early access to super

Release Triggers

Triggers enabling the legal release of superannuation include:

  • Age together with working status (e.g. retirement)
  • Special circumstances – including terminal medical conditions, death, severe financial hardship and compassionate grounds (strictly administered)

The Treasury Laws Amendment (2018 Measures No. 1) Bill 2018 transfers the regulator role for early release of superannuation benefits on compassionate grounds from the Chief Executive Medicare (Department of Human Services) to the Commissioner of Taxation (Australian Taxation Office) – from 1 July 2018,

See further: CRT Alert 53/2018 ATO to administer compassionate early release of super

Early release

Most early release applications are handled directly by the super fund. However early release on certain specified compassionate grounds can be applied for online through a Centrelink account at myGov – see DHS – early release of super.

Note also that temporary residents leaving Australia have a separate application process.

Aside from special circumstances, you can’t access your super before reaching preservation age. Reaching preservation age means your super funds can be released, subject to your own fund’s internal rules and other conditions, which may include:

  • taking a transition to retirement pension between the ages of 55 to 60; or
  • retirement after the age of 60,  or
  • turning 65

News Dec 7, 2017: Early release conditions review. The (through Treasury) intends to review the current early release rules as they apply to severe financial hardship and compassionate grounds. It will also review whether superannuation assets should be available to pay compensation or restitution to victims of crime. See Minister’s media release in which the Minister has also indicated a transfer of the administration of early release on compassionate grounds from the Department of Human Services to the ATO – to take effect in from 1 July 2018.

The Treasury Laws Amendment (2018 Measures No. 1) Bill 2018 transfers the regulator role for early release of superannuation benefits on compassionate grounds from the Chief Executive Medicare (Department of Human Services) to the Commissioner of Taxation (Australian Taxation Office); and also  amends the Superannuation (Unclaimed Money and Lost Members) Act 1999 , the Small Superannuation Accounts Act 1995 and the Superannuation Guarantee (Administration) Act 1992 to enable the Commissioner to pay unclaimed money of lost members and other superannuation amounts directly to persons with a terminal medical condition.

The tax on released super

The tax position of funds released from super will depend on:

  • age
  • the source of funds (taxed, untaxed, tax free)
  • whether paid as a lump sum or an income stream (pension)
  • status of beneficiary (see death benefits)

Transfer balance cap limit of $1.6 million

budget-2016_17Measures contained in the 2016 Budget now limit the value of super funds which can be transferred into the retirement tax-free phase from 1 July 2017.

Essential elements of the changes include:

  • The previously existing annual non-concessional contributions cap of $180,000 per year is reduced to $100,000
  • For under 65 year olds the 3 years’ non-concessional ‘bring forward’ rule remains, but subject to lower caps
  • Individuals with a superannuation balance of more than $1.6 million (indexed and tied to the transfer balance cap) will not be able to make non-concessional contributions from 1 July 2017.
  •  the proposed abolition of the work test for ages 65 to 74 will not proceed
  •  proposed catch-up for concessional superannuation contributions will be deferred by one year to 1 July 2018, and will allow unused concessionary cap value to be brought forward for up to 5 years.

For more details see

Preservation age

Your preservation age depends on when you were born as indicated by the following table:

Date of BirthPreservation Age
Before 1 July 196055 years old
1 July 1960 to 30 June 196156 years old
1 July 1961 to 30 June 196257 years old
1 July 1962 to 30 June 196358 years old
1 July 1963 to 30 June 196459 years old
1 July 1964 or later60 years old

When a lump sum super fund withdrawal is made, tax is required to be withheld unless specific conditions are met. The amount of tax to be withheld depends on the source of the funds being paid and the age of the beneficiary.

The following table is a summary of applicable tax rates. References to Low Rate Cap and Untaxed Plan Cap are to the two additional tables below.

Lump Sum Payments – Tax Withholding Rates

Payments of benefits sourced from after-tax (non-concessional) contributions will always be tax free. Benefits sourced from concessional (tax-deductible) contributions will either be a “taxed” or “untaxed” element, and taxed as in the following table.

See also Tax Instalment Tables

AgeTaxed ElementUntaxed Element
Any age – with a terminal illnessNilNil
Below Preservation Age22%32% to Untaxed Plan Cap
47%* above Untaxed Plan Cap
From Preservation Age to 59 yearsNil up to the Low Rate Cap
17% above the Low Rate Cap
17% to Low Rate Cap
32% from Low Rate Cap to Untaxed Plan Cap
47% above Low Rate Cap Untaxed Plan Cap
Aged 60 and aboveNil17% to Untaxed Plan Cap
47%* above Untaxed Plan Cap
The above rates include Medicare and assume TFN is disclosed. * From 1 July 2014 medicare levy increased by 0.5% to 2% and until 30 June 2017 a Temporary Budget Repair Levy of 2% was added to the top marginal rate such that the corresponding rate steps became 22%, 17%, 32% and 49% inclusive of medicare levy.

Low Rate Caps

Low Rate Cap Amounts
Year Ended 30 June:Amount
2019$205,000
2018$200,000
2017$195,000
2016$195,000
2015$185,000
2014$180,000
2013$175,000
2012$165,000
2011$160,000
2010$150,000
2009$145,000
2008$140,000

The low-rate cap is a lifetime tax-free limit on superannuation lump sums paid from taxed benefits. The cap amount is indexed annually in line with AWOTE in increments of $5,000 (rounded down) generally made available in February of each year.

 

Untaxed Plan Caps

Untaxed Plan Cap Amounts
Year Ended 30 June:Amount
2019$1,480,000
2018$1,445,000
2017$1,415,000
2016$1,395,000
2015$1,355,000
2014$1,315,000
2013$1,255,000
2012$1,205,000
2011$1,155,000

The cap amount is indexed annually in line with AWOTE in increments of $5,000 (rounded down) generally available in February of each year.

Tax rates – a summary*

* this is a generalised summary which takes no account of individual circumstances. Please seek professional advice before taking any action.

  • The tables below do not include the impact of Medicare Levy.
  • Tax is not paid on any withdrawal which is authorised on the basis of a terminal medical condition.
  • The tax rates for temporary residents leaving Australia permanently (“DASPs”) are here.

Tax on TAXED element superannuation withdrawals

INCOME STREAM
Member’s AgeUp to Low Rate CapAbove CapOffset
Below Preservation AgeMarginal RateNil
Preservation Age to 60 yearsMarginal Rate15%
Over 60No tax

 

LUMP SUMS
Member’s AgeUp to Low Rate CapAbove Cap
Below Preservation AgeLower of marginal tax rate or 20%
Preservation Age to 60 years0%Lower of marginal rate or 15%
Over 60No Tax

 

Untaxed super is essentially funds on which tax has not been paid on the member’s behalf, that element of the member’s fund value therefore being “untaxed”. Depending on the member’s tax position, the tax on withdrawal of untaxed elements may be higher than the total tax applicable to fully taxed funds.

Age-based taxability of withdrawals are differentially treated with reference to both Low Rate and Untaxed Plan Caps.

Tax on UNTAXED element superannuation withdrawals

INCOME STREAM
Member’s AgeTax rateOffset
Below Preservation AgeMarginal RateNil
Preservation Age to 60 yearsMarginal RateNil
Over 60Marginal Rate10%

 

LUMP SUMS
Member’s AgeUp To Low Rate CapFrom Low Rate Cap To Untaxed Plan CapUp To Untaxed Plan Cap Over the cap
Below Preservation AgeLower of marginal rate or 30%Marginal rate
Preservation Age to 60 yearsLower of marginal rate or 15%Lower of marginal rate or 30%Top marginal rate
Over 60Lower of marginal rate or 15%Top marginal rate

Rates in the above tables do not include Medicare levy the general rate for which increased by 0.5% to 2% from 1 July 2014.

Death Benefits

Death benefits paid to dependent beneficiaries are generally afforded generous tax treatment.

Superannuation death benefits
Type of benefitTax rateOffset
Pension – tax free componentnil
Pension – taxable component – both member & beneficiary under 60Marginal Rate15%
Pension – taxable component – member or beneficiary aged 60 or overnil
Lump sum – tax free componentnil
Lump sum – taxable component – dependent beneficiarynil
Lump sum – taxable component plus Section 295-485 anti-detriment amount – dependent beneficiary * (removed from 1 July 2017)nil
Lump sum – taxable component – non-dependent beneficiary15%
Lump sum – untaxed component30%

* spouse, former spouse or child.

Rates in the above tables do not include Medicare levy the general rate for which increased by 0.5% to 2% from 1 July 2014.

Commutation Guidance

The Taxation Office has released guidance on the commutation of death benefit income streams before 1 July 2017  see Practical Compliance Guideline PCG 2017/6 and article: Existing death benefit pensions, transfer balance caps and the ATO lifeline – PCG 2017/6

Further information and resources

 

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This page was last modified 2018-12-06