How much tax do I pay on a super withdrawal before age 60 in Australia?
If you withdraw super before age 60, generally tax applies to the taxable component, even if you’ve met your preservation age. The tax rate depends on your age, the amount withdrawn, and the type of component (tax-free or taxable-taxed/untaxed).
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How it works in practice
Understanding Super Withdrawals Before Age 60
Withdrawing your superannuation before you turn 60 is generally subject to tax, even if you have reached your preservation age. Your preservation age is the minimum age you must reach before you can access your super, which varies based on your date of birth.
Taxable vs. Tax-Free Components
Your super balance is typically made up of two components: tax-free and taxable. The tax-free component generally includes contributions for which no tax deduction was claimed. This component is usually tax-free upon withdrawal.
The taxable component, which includes employer contributions and earnings, is generally taxed upon withdrawal if you are under 60. However, if you are between your preservation age and 59, you can withdraw a certain amount (known as the low-rate cap amount) from the taxable component tax-free. Any amount above this cap is taxed at 15% (or your marginal tax rate if higher, but typically capped at 15% for the taxed element).
Accessing Super on Specific Grounds
Different tax rules may apply if you are accessing your super early due to severe financial hardship, compassionate grounds, or temporary/permanent incapacity. In these cases, it's crucial to understand the specific conditions and tax implications as they can differ from standard withdrawals.
Important exceptions
The tax rules for early super withdrawals have several exceptions.
Firstly, the tax-free component of your super is generally not taxed, regardless of your age or how it's accessed.
Secondly, if you are between your preservation age and 59, a low-rate cap amount applies, allowing you to withdraw a portion of your taxable component completely tax-free each year. This cap can change, so it's important to check the current amount.
Lastly, withdrawals due to permanent incapacity are generally tax-free. However, severe financial hardship or compassionate grounds withdrawals may still be subject to tax, depending on the specific circumstances and component accessed, though specific conditions often apply.
What you should do now
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Determine your preservation age by checking your date of birth against ATO guidelines to confirm when you can first legally access your super.
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Understand the components of your super (tax-free and taxable) by reviewing your latest super statement or contacting your super fund to estimate potential tax liabilities.
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Calculate the low-rate cap amount that applies for the current financial year if you are between your preservation age and 59, as this amount can be withdrawn tax-free.
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Seek professional financial advice before making any super withdrawal decisions to ensure you understand the tax implications and explore all your options.
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Contact your super fund to discuss the withdrawal process, required documentation, and specific tax treatment that will apply to your situation.
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