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DMFS Financial Advisers is a financial planning practice focusing on retirement planning, wealth accumulation and aged care.


Superannuation: understanding the basics

1 January 2020 (updated annually)

Superannuation is an investment strategy for your retirement that you can build up during your working life.

The benefits of super

Guaranteed contributions: If you are working, your employer is generally required to contribute at least 9.5 per cent of your salary to your super fund on your behalf (this is known as the superannuation guarantee or SG). Most employees who are above age 18 and are earning more than $450 per month are eligible for SG contributions. This applies whether you are full-time, part-time or employed on a casual basis.

Investment options: Your super fund pools your super money with other members’ funds and invests the money in assets, such as property, shares, fixed interest and cash investments. By carefully choosing the best assets, your fund makes sure that the money you contribute is looked after and grows. The aim is to build up as much money as possible for your retirement, to ensure a comfortable lifestyle.

Timeframe: Superannuation is generally a long-term investment. This means that your money has a long time to benefit from the growth of your investments.

Your super account

Your super account diagram

Case study

Consider John who is 47 and has $120,000 in his super fund. His employer contributes super guarantee of $6,300 each year into his super fund. John makes additional salary sacrifice contributions of $5,000 each year. John also has life insurance coverage of $300,000 within his super fund, and a premium of $31.75 per month applies.* John’s super is invested in a balanced range of assets. Over 12 months, John’s super account could possibly be similar to the following diagram:

John’s super account

John's super account

Assumes earnings of 7% per annum before tax, fees based on 2% per annum administration + investment management fee. The investment earnings for contributions is calculated on a quarterly basis.

* Included for illustrative purposes only.

Things to consider

Fees: To pay for the cost of looking after your super, fees are deducted from your account. Also, as super is an investment, the Government also charges tax albeit at a concessional rate.

Insurance premiums: Sometimes your super fund offers insurance to cover you for death, total and permanent disablement and income protection. If you elect to have insurance cover within your super fund, then the premiums for that insurance are deducted from your account.

Preservation age: The Government has placed restrictions on when you can access your super benefits, to ensure that super is used in retirement and not beforehand.

Your preservation age is the Government specified age at which you can gain access to your superannuation benefits, provided you have permanently retired from the workforce. Your preservation age is determined by the year you were born.

What’s your preservation age?

When were you born? Your preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
After 30 June 1964 60

Access to your benefits

All contributions paid into a superannuation fund are preserved until you have met a condition of release such as reaching your preservation age and being retired from the workforce. In other limited circumstances you may be able to access your superannuation benefit, for example under financial hardship, if you become totally and permanently disabled or under the transition to retirement rules.

At retirement

Once you retire, your fund may give you the option to take your superannuation benefit as either a lump sum or as an income stream. An example of an income stream product is an account-based pension.

Find and consolidate your super

You can easily consolidate your super in just a few clicks. By simply logging into your account you can find all of your super, even the accounts you didn’t know you had, and get it all into one place – without filling in any forms.

Simply log into your account, go to ‘find and consolidate your super’ on the home page and follow the prompts.

Splitting superannuation contributions

1 July 2020 (updated annually)

A super splitting strategy allows single income families to share the ongoing accumulation of superannuation in a similar way to dual income families.

Certain superannuation contributions can be split with your spouse, either within the same fund or to a different fund, providing your super fund permits it. It’s important to note, however, that only certain contributions can be split, not the account balance itself and any contributions that are split are counted towards the contributing spouse’s contribution cap, not the receiving spouse’s cap.

The applicant’s spouse is held to be the ‘receiving spouse’ and must be a person who is either married to the applicant, is in a registered relationship (under certain state or territory laws) or lives with them on a genuine domestic basis in a relationship as a couple. To receive a split contribution, the receiving spouse must be under preservation age or, if between preservation age and 64 years, needs to have met certain conditions, such as, not being retired.

Why split?

Which superannuation contributions can be split?

You may split the following concessional contributions:

What is the maximum amount that can be split?

The maximum amount of contributions you can split in a financial year, is the lesser of:

When can contributions be split?

You can apply to split contributions either:

* Note: You may want to check with your fund if the application must be received by a certain date.

Which contributions cannot be split?

You may not split the following contributions:

Case study

Harry, aged 53, is working full time and is married to Ruth, aged 50, who is working part time. They have decided to sell their investment property, owned jointly, creating a net capital gain of $50,000 each. Harry and Ruth didn’t use their full concessional contributions cap in the two previous financial years. They have unused concessional contributions cap of $31,000 and $40,000 respectively. If eligible to use their unused concessional contributions cap, they could make larger personal tax-deductible super contributions to reduce the tax payable on the capital gain.

Eligibility to use the unused concessional contributions cap in the 2020/21 financial year includes a requirement for the individual’s total super balance as at 30 June 2020 to be less than $500,000. Ruth is well below this balance and can use her unused concessional contributions cap to reduce her tax payable on the capital gain. Unfortunately, Harry’s total super balance is just over this amount and he cannot use his unused concessional contributions.

If Harry had been contribution splitting to Ruth, his total super balance at 30 June 2020 would have been less than $500,000 and he would be eligible to use his unused concessional contributions cap.

The following table compares the outcome for Harry if he had super split to Ruth making him eligible to use his unused concessional contributions cap.

  Not eligible to use his unused concessional contributions cap

Eligible to use his unused concessional contributions cap after contribution splitting

Salary $100,000 $100,000
Net capital gain $50,000 $50,000
Employer super support $9,500 $9,500
Unused concessional cap from current year $15,500 $15,500
Unused concessional cap from prior years Not eligible $31,000
Personal tax-deductible super contributions $15,500 $46,500
Tax on personal tax-deductible super contributions $2,325 $6,975
Tax on taxable income $39,952 $27,187
Total tax payable* $42,277 $34,162

*Excludes tax on the employer super support which is consistent across both scenarios.

Harry could have saved an additional $8,115 in tax if he had super split to Ruth, bringing his total super balance below $500,000 at 30 June 2020, allowing him to take advantage of his unused concessional contributions cap.

Super funds

1 July 2020 (updated annually)

Creating your investment portfolio by making contributions to a superannuation fund can be one of the most effective ways to save for your retirement.

What is a superannuation fund?

A superannuation fund is a long-term investment which is designed to help you to save money during your working life to support your lifestyle in retirement.

Contributions made to your superannuation accumulate during your working life and are invested in a range of investment assets, such as cash, fixed interest, shares, property and alternative investments.

The type of assets into which investments are made will depend on the investment strategy of your fund.

Profits from these investments, both income and capital growth, are added to your contributions to increase the value of your superannuation.

Once you have met a ‘condition of release’, generally when you have reached 57 years of age and have permanently retired from the workforce, you will be able to:

Super fund diagram

Superannuation contributions

Contributions will generally be made by either yourself, your spouse and/or your employer.

As an employee, under the superannuation guarantee legislation (SG) or an industrial award, your employer will usually be required to make superannuation contributions on your behalf equal to 9.5 per cent of your annual wage or salary.

In addition to these SG contributions, you may also be able to make additional salary sacrifice contributions.

As outlined in the table below, the rate of SG contributions will increase gradually to 12 per cent by 1 July 2025.

Financial year Rate (%)
2015/16 – 2020/21 9.5
2021/22 10.0
2022/23 10.5
2023/24 11.0
2024/25 11.5
2025/26 onwards 12.0

In order for any superannuation contributions to be accepted, you must meet certain age and work requirements.

Your age SG or Industrial award contribution Salary sacrifice contribution Personal contribution Spouse contribution
Under 67
67 to 74 If gainfully employed for 40 hours during any 30 day period in the current financial year or meets the work test1. For spouse contributions, the work test is dependent on the recipient spouse.
75 and over ✘^ ✘^

1. A work test exemption allows personal and employer contributions to be accepted where the client has met the work test in the previous financial year and their total super balance is below $300,000 as at 30 June in the prior year (one use only).
^ Able to receive contributions within 28 days of the following month of turning age 75, if gainfully employed for 40 hours during any 30 day period in the financial year.

Tax treatment of contributions

Concessional contributions

Concessional contributions are pre-tax contributions made under the SG, an industrial award or as part of a salary sacrifice strategy and are taxed at the concessional rate of a maximum of 15 per cent. Because of this concessional tax treatment, your employer will be able to claim these contributions as a tax deduction, which is identical to the deduction that they can claim on any amount paid to you as salary.

Similarly, you will be able to claim your personal contributions as a deduction against your assessable income to reduce your personal income tax.

Total income is your assessable income plus reportable fringe benefits, plus salary sacrifice contributions.

The following example compares the net benefit from a salary taxed at 32.5 per cent (excluding Medicare levy) compared with a salary sacrifice contribution to your super.

  Salary Salary sacrifice contribution to super
Gross payment $1,000 $1,000
Tax rate 32.5% 15%
Tax payable $325 $150
Net benefit $675 $850

From 1 July 2012, employees who have adjusted taxable income up to $37,000 will receive a refund of contributions tax of up to $500 via a low income super tax offset. This will ensure that employees will be no worse off when receiving superannuation guarantee contributions from their employer.

To be eligible for the low income super tax offset, you must make concessional contributions during the year and you:

Note: the low income superannuation contribution also applies if you are self-employed, make personal deductible contributions into superannuation and satisfy the above eligibility criteria.

Non-concessional contributions

Contributions which you or your spouse make into your super for which a deduction is not claimed are called non-concessional contributions. In other words, contributions made with after-tax money. These types of contributions will not be subject to any tax as long as the level of contributions you make remain within the non-concessional contributions cap.

There may be times when your non-concessional contribution will attract additional benefits.

Excess contributions

Although the Government provides tax incentives to encourage people to contribute more to their super, there is a limit on the amount you can contribute each year before penalty tax is imposed.

Individuals now have the option of withdrawing excess non-concessional contributions made from 1 July 2013 (and associated earnings) with these notional earnings to be taxed at the individual’s marginal tax rate.

The concessional contributions cap is $25,000 a year.

The non-concessional contributions cap is $100,000 per year for those who have less than $1,600,000 in total super. Under the ‘bring forward’ rules, however, you can bring forward up to an additional two years’ worth of non-concessional contribution caps and contribute up to $300,000 to your super in one year. To utilise the ‘bring forward’ provisions, you must be aged 64 or under on the first day of the financial year in which the contribution will be made and have a total super balance less than $1,400,000 on the last day of the prior financial year.

Between 65 and 74 you’re limited to $100,000 per annum.

When you reach age 75, non-concessional contributions to your super are no longer permitted.

If you exceed either of your contributions cap, any excess contributions you make to super may be subject to your marginal tax rate plus an imposed charge.

Superannuation benefits


Superannuation is designed to help you build an investment portfolio which you can use to support your lifestyle in retirement. As a result, the Government has put in place a system of ‘preservation’ to ensure that your superannuation savings can not generally be accessed until you have met a ‘condition of release’.

Non preserved benefits

Contributions made to a superannuation fund prior to 1 July 1999 may be classified as either unrestricted non-preserved or restricted benefits. You may be able to withdraw these benefits before meeting one of the ‘conditions of release’ shown below. This can be a complicated area and your financial adviser will be able to discuss with you whether any of your benefits fall into these categories.

Preservation age

For many, a ‘condition of release’ will first be met when you reach your preservation age and permanently retire from the workforce. If you are born after 1 July 1960, your preservation age will be later as indicated in the table below.

Date of birth Preservation age
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
1 July 1964 – or later 60

Conditions of release

The following table provides a guide to the most common ‘conditions of release’ and the type of benefits that you can receive once each of these conditions has been met.

In some cases, you may be eligible to withdraw part of your benefits (ie unrestricted non preserved benefits) prior to meeting one of these conditions of release.

Condition of release Income stream (ie pension or annuity) Lump sum withdrawal
Reaching your ‘preservation age’ while you are still working (ie transition to retirement)
Reaching your ‘preservation age’ and permanently retiring from the workforce
Change of employers after reaching 60 years of age
Reaching 65 years of age
Terminal medical condition
Death Refer to the ‘Estate Planning’ section
Permanent incapacity
Temporary incapacity
During the period of the incapacity only2
Severe financial hardship
One payment per year of up to $10,000 (gross)
Compassionate grounds

Investment earnings and insurance

Accumulation account

When a contribution is made to a superannuation fund, the amount of contribution remaining after any contributions tax has been removed will generally be used by the trustee of the fund to purchase either:

Tax treatment of investment earnings

As these assets produce income and realise capital gains, all of this income and the capital gains will be taxed at up to15 per cent if in the accumulation accounts and transition to retirement pension accounts. For gains on assets held over 12 months, only 2/3 of the gain will be assessable. If the fund has capital losses or has incurred tax deductible expenses, the trustee can use these items to further reduce the tax paid by the fund. If earnings are generated in a retirement pension account there is no tax payable.

Taxing of superannuation benefits

When you receive a benefit, the amount that you will be taxed, will depend on:

In addition, each benefit will usually contain one or more of the following components:

The amount of each component that forms your benefit will also affect the amount of tax you will pay.

The table below outlines the tax payable on most types of benefits. If the benefit is received as a result of incapacity or death, lower tax rates may apply.

To find out more about the tax treatment of incapacity benefits, please speak to your financial adviser. To find out more about how your super benefit will be treated in the event of your death, please refer to the estate planning section overleaf. There may also be additional taxes payable if your income from non account based pensions (such as defined benefit income streams) exceeds $100,000 per annum.

Age Type of benefit Tax rate payable
    Tax-free component Taxable component (taxed element) Taxable component (untaxed element)
Under preservation age Lump sum 0% 22%
  • 32% on first $1,565,000
  • 47% on remainder
  Income stream 0% Your marginal rate Your marginal rate
Between preservation age and age 59 Lump sum 0%
  • 0% on first $215,000
  • 17% on remainder
  • 17% on first $215,000
  • 32% on $215,000 – $1,565,000
  • 47% on remainder
  Income stream 0% Your marginal rate less 15% tax offset Your marginal rate
Age 60 and over Lump sum 0% 0%
  • 17% on first $1,565,000
  • 47% on remainder
  Income stream 0% 0% Your marginal rate less 10% tax offset

Note: tax rate payable includes the Medicare levy of 2%

Estate planning

If a balance remains in your super at the time of your death, death benefits may be paid to your beneficiaries or your estate.

Types of beneficiaries

The type of benefit which can be paid will depend on the relationship that the beneficiary had with you immediately before your death as illustrated in the table below.

Beneficiary Type of benefit
Spouse or partner (including same sex partners) Pension income or lump sum
Child over 18 and not financially dependent upon you Lump sum only

A child

  • under the age of 18 years
  • aged between 18 years and 25 years and financially dependent on you, or
  • aged 18 years or older and suffers from a (prescribed) disability
Pension income or lump sum3
A financial dependant or someone who had an interdependency relationship with you as at the date of death Pension income or lump sum
Your estate to be dealt with under your Will Lump sum only

It is important to understand the following:

Tax treatment of death benefits

The tax rates that apply to a death benefit paid to a beneficiary will depend on a number of factors, including:

Your beneficiary should consult with their financial adviser prior to receiving a death benefit to ensure that the benefit is received in the most appropriate form.

Consideration should be given not only to any tax payable, but also the future needs of the beneficiary.

Benefit paid as a lump sum
Beneficiary Tax-free component Taxable component Untaxed-taxable component
  • Spouse or partner
  • Child under 18 years
  • Financial dependant
  • In an interdependent relationship
0% 0% 0%
Any other eligible dependant 0% Taxed at 17%* Taxed at 32%*

* Includes 2% Medical levy

Benefit paid as pension
Your age at death The age of the beneficiary or the deceased at date of death Tax-free component Taxable component Untaxed-taxable component
Under age 60 Under age 60 0% Their marginal tax rate less 15% tax offset until their 60th birthday, then tax-free Marginal tax rate (no tax offset)
  Aged 60 or over 0% 0% Marginal tax rate (with 10% tax offset)
Aged 60 or over Any age 0% 0% Marginal tax rate (with 10% tax offset)

A taxable component -untaxed element is generated when life insurance is included within the lump sum death benefit (assuming the trustee has claimed a deduction for the premium).

Centrelink assessment

Centrelink and the DVA will disregard your superannuation balance under both the income and assets tests until you reach the age pension age.

Once either you or your partner has reached age pension age, your superannuation investments will generally be:

Lump sum withdrawals

The amount of benefit you withdraw as a lump sum is not treated as income under the income test. However, what you choose to do with the money may affect the rate of your pension or allowance.

For example, if the money was used to purchase an income stream prior to 1 January 2015, then the applicable income and assets test assessment would apply.

If the money was placed in a bank account, or an income stream (such as an account-based pension) after 1 January 2015, it would be assessed as an asset and income would be determined using the deeming rules.


1 Assessable income for tax purposes, includes reportable fringe benefits and reportable employer super contributions (such as salary sacrifice contributions into superannuation).
2 Can only be funded via an income protection policy.
3 The pension must be commuted as tax-free lump sum by age 25 unless the child suffers from a (prescribed) disability.


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