Commonwealth tax at the rate of 15% is payable by the scheme on most employer contributions for service from 1 July 1988. As a result, most employer-financed benefits accrued from 1 July 1988 are reduced by 15%, except for lump sum death benefits. However, you compensate for this reduction by paying reduced income tax when you receive your benefits. The amounts shown in the annual statements we send you each year are calculated after the benefit reduction has been applied.
Taxation of your benefit
If you are over 60, any benefits paid to you (as a lump sum or as a pension) are tax-free and are not assessable for income tax purposes.
If you are under 60, all benefits are subject to Commonwealth benefits or income tax. The tax payable varies depending on:
- the type of benefit you take
- your tax-free amount
- your eligible service period
- your age
- the reason for terminating your employment.
The tax will be calculated and deducted from your benefit when it is paid.
Taxation can have a significant impact on the benefit you receive, so it is important that you understand the tax rules, or consult an expert adviser.
Your tax-free amount
Your tax-free amount comprises:
- your after-tax personal contributions paid into PSS since 1 July 1983 (or the date you joined the scheme, if later). These contributions are now called non-concessional contributions (previously called undeducted contributions)
- any Commonwealth Government co-contributions and LISC
- the proportion of your benefits (if any) that relates to service before 1 July 1983. In accordance with Commonwealth tax requirements, this component was calculated at 30 June 2007.
You can find your tax-free amount and eligible service period start date on your Annual Statement.
The tax-free amount is apportioned between the benefits you receive from the scheme (including the basic benefit).
The tax treatment of superannuation is complex. You can find an overview in STC Fact Sheet 3: Taxation.