How Super Is Taxed

Super is taxed at three gates: 15% when money goes in, up to 15% while it grows, and — after you turn 60 — zero on the way out.

That zero is not a typo. Super is the only mainstream place in the Australian tax system where money eventually becomes genuinely tax-free. Here's each gate in turn.

Money entering super before income tax — the compulsory 12% your employer pays, salary you sacrifice, or personal top-ups you claim a deduction for — pays a flat 15% contributions tax on arrival. These are concessional contributions (before-tax money going into super), capped at $30,000 a year for FY2025-26.

Note that your employer's 12% counts towards that cap. On a $100,000 salary, employer super uses up $12,000 of it before you've contributed a cent.

Compare that 15% to your marginal rate — the tax rate on the last dollar you earn. In the 30% bracket, every dollar routed through this gate keeps roughly 15 extra cents. That gap is the entire case for salary sacrificing.

During the accumulation phase — the saving-up years before retirement — everything your super earns is taxed at a maximum of 15%: interest, dividends, rent from the fund's property holdings.

Capital gains — profits from selling investments for more than they cost — do even better. Hold for over 12 months and the fund pays an effective 10%.

The same investments in your own name are taxed at your marginal rate — up to 47% with the Medicare levy. Over 30 years, that difference compounds into a genuinely large number.

Once you're 60 and withdrawing from a taxed fund — which covers the vast majority of Australian super funds — your withdrawals are completely tax-free. Lump sum, regular pension payments, or a mix: zero tax, and the money doesn't even appear on your tax return.

The earnings tax also switches off once you start a retirement pension, up to a lifetime limit on how much you can move into that tax-free pension zone.

The catch: you generally can't touch any of it until preservation age — the age the government finally unlocks your super, which is 60 — plus an official trigger like retiring.

It's a trade. You lock money away for decades; in exchange, the tax office takes a smaller bite at every stage. The deal is designed to make future-you less dependent on the Age Pension.

No other vehicle gives an ordinary employee these rates — taxed lightly going in, lightly growing, tax-free coming out — without doing anything clever. The flip side: caps limit how fast you can contribute, and the lock lasts until 60.

Money in: 15% on before-tax contributions, capped at $30,000 a year including employer super, with an extra 15% for those earning over $250,000.

Money growing: 15% on earnings, effectively 10% on long-held capital gains, dropping to 0% once you start a retirement pension.

Money out: 0% after 60 from a taxed fund. To see what routing more salary through gate one would save you this year, our Salary Sacrifice Calculator does the maths in seconds.