Superannuation and Retirement
The superannuation system
Superannuation is a tax-advantaged savings vehicle. Key concepts: the three tax phases (contributions, earnings, benefits), the concessional and non-concessional contribution caps, and the preservation age. Understand the difference between accumulation and defined benefit funds.
Key concepts
Know the concessional contributions cap (indexed) and the non-concessional cap, the carry-forward unused concessional cap rules, and the Division 293 tax for high-income earners. Understand the taxation of benefits: lump sums and pensions, and the tax-free status of benefits from taxed sources after age 60. Know the rules for self-managed super funds (SMSFs) and the sole purpose test.
Traps
A common trap is exceeding the contribution caps and incurring excess contributions tax, or assuming all benefits are tax-free regardless of age. Another is confusing the preservation age with the age pension age. Watch for the treatment of death benefits and the dependant definition.
Worked example
An individual aged 62 receives a lump sum from a taxed super fund. Because they are over 60, the benefit is tax-free. If they were 58, the taxable component would be taxed at 15% (plus Medicare). Rule of thumb: age 60 is the key threshold for tax-free benefits from taxed sources.