Contributions tax
State Super is a taxed superannuation scheme, which means that tax is generally paid by the scheme on taxable contributions and investment earnings, rather than all tax being deferred until a member's benefit is paid.
Since 1 July 1988, State Super has been required to pay Commonwealth tax on employer contributions used to finance your benefits. Commonwealth tax of 15% is generally payable by the scheme on employer contributions relating to service from 1 July 1988. As a result, most employer-financed benefits accrued from this date are reduced by 15%, except for lump sum death benefits.
Tax is also payable on contributions you make on a salary sacrifice basis. Your benefits are reduced to offset this tax, except in the event of your death.
Note: The benefit amounts shown on your Annual Statement are calculated after these reductions have been applied.
Taxation of your benefit
If you are aged 60 or over, any lump sum benefits paid to you are tax-free and are not assessable for income tax purposes. Generally, your pension will also be tax-free unless you exceed the defined benefit income cap. You will receive a PAYG payment summary at the end of each financial year, and, depending on your circumstances, you may need to include your pension payments in your income tax return.
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 LISTO
- 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.