How pensions are taxed

Different tax rules apply based on your age and the type of pension you have.

Under Age 60

Your pension or Transition to Retirement (TTR) account balance is made up of two components - the taxable component and the tax-free component. As their names suggest, the taxable component attracts tax, while the tax-free component doesn't. The amount of tax applied to the taxable component depends on your age and the type of account you have.

The proportion of these two components is calculated when you start your pension or TTR. This fixed proportion then applies to each payment you receive.

If you are under 60, taxes* will apply to pension income payments and additional payments. Investment returns in a pension account are tax-free, however tax* is paid on the investment returns in a TTR account.

Age 60 or more

If you are aged 60 years or more, any income and additional payments are tax free.

The same rules regarding tax on investment returns that apply to under 60s also apply if you’re aged 60 or more. That is, investment returns in a pension account are tax-free, however tax* is paid on the investment returns in a TTR account.

* Please see the Pensions Guide PDS for further information

Tax on commencement

If any part of the superannuation you use to start your pension consists of an untaxed rollover amount (previously a post-June 1983 untaxed element), this portion will be taxed at 15%. Generally, this is only applicable if you are transferring from an untaxed super fund. For most members, tax has already been deducted by their super fund, so this tax will not be applicable.

Superannuation surcharge tax

The superannuation surcharge tax was abolished from 1 July 2005; however, the surcharge may still be payable for periods before this date.

If the ATO assesses that you are liable to pay a superannuation surcharge, you will be required to pay this directly. If you need to withdraw additional funds from your pension to pay the surcharge, that withdrawal will be tax-free.

 

Important note: different rules may apply to your pension if it was established before 1 July 2007. If you have a pension established before this date, contact your fund for details.