Taxation Of Superannuation In Australia

By: EconomyWatch   Date: 14 October 2010

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Superannuation in Australia is a pension program. Under this program, every employer is required to pay by law, some portion of the wage or salary of the employees into the superannuation fund. Presently, it is 9% in Australia. Money from the superannuation fund can be retrieved when the employees retire. The practice of Taxation of superannuation in Australia is an old concept. However, the taxation in superannuation in Australia, prevailing at the moment was launched in the year 1992. Keating government introduced this system as a measure to bring about reform in the retirement policies in Australia.

Several economists predicted that several Western countries along with Australia would be subjected to changes in demography in the years to come. Therefore, it was estimated that there would be an increase in the payments of pension in the near future. This would in turn affect the economy of Australia. Hence, the “ three pillar” concept was settled for with regard to retirement policies.

The three pillars:
  • One could voluntarily save through investments and the superannuation scheme.
  • As contributions to the superannuation fund has been made compulsory, this also led to savings (private).
  • It was regarded as a safety back up and was a system tried by the government for pensions.

Once the taxation of superannuation in Australia was implemented, the employers made their contribution to the superannuation fund, which was earlier 3 percent of the income of the employee. Gradually, the percentage was increased by the government in Australia. It was made 9 percent since July 2002. This was slated as the minimum contribution.

Previous status of superannuation assets:

Although people have strongly supported taxation of superannuation in Australia, when this retirement policy was launched, there were several who had feared that this would inflict a lot of strain and recurring cost for maintenance would be high. However, these people gave in after they actually understood the policy. There was a lot of criticism about the government headed by Howard. People wanted that the superannuation rate (compulsory) ought to have been 15 percent instead of 9 percent. Since 1996, had it been 15 percent, by now the total assets(superannuation) would have neared $2 trillion. This would have been almost twice than what it is today. Currently, superannuation assets in Australia is $1053 billion.


Presently, taxation of superannuation in Australia is carried out at 15%, which is a flat rate. Taxes from superannuation funds contribute more than $6 billion in the government revenue. As per Australian budget of 2006-2007, Australians who were more than 60 years would not be required to pay tax for withdrawing cash from the superannuation fund, if the money happens to be from a taxable source. This was made effective from July 1st, 2005.

Superannuation Surcharge:

In the year 1996, extra “superannuation surcharge” was imposed by the Australian government. This extra surcharge was meant for individual with high income. This was a measure adopted by the Australian government to increase revenue. This surcharge was reduced from 15 percent to 10.5 percent as promised by the Australian government while campaigning for the 2001 elections. In the 2005-2006 budget, the superannuation surcharge was completely withdrawn and this was with effect from July 1st 2005. Since, 1st January, 2006, the Australian government allowed spouses to contribute to the superannuation fund. Advantage of this new set up was that the couples(members of the fund), could enjoy tax benefits on their savings from the retirement scheme.

Procedure followed in taxation of superannuation in Australia:
Contributions from the employer:

The employers are required to contribute to the superannuation fund quarterly or at intervals of three months. The employer contributes to the superannuation fund as long as the employee works in the organization. At the time of retirement, the employee gets the whole amount kept aside by the employer in addition to other earnings. The total earning can be ascertained only after taxes as well as fees are reduced from the entire fund. This superannuation or pension fund is handed over to the employee.

Superannuation Guarantee Law:

This law is applicable to all the Australians who work. However, this law does not apply to Australians whose monthly income is below $450. This law also does not apply to individuals below the age of 18 years or above the age of 70 years. An individual can add to the superannuation fund by making voluntary contributions. Against the extra contributions they are making towards this fund, the individuals can also avail of tax benefits.

Regulation:

The superannuation fund is governed by the:

  • Superannuation Industry Act 1993.
  • Financial Services Reform Act 2002
  • Superannuation Guarantee Act 1992.

The responsibility of the Australian Taxation Office or the ATO is to check whether the superannuation fund is abiding by the norms set by the authorities. The ATO also checks whether the correct tax rate is imposed.


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