Nick Bruining Q+A: Tax and super? It’s a mess! Here’s how to know which parts of your super are safe from ATO

Question I recently logged onto my superannuation fund’s website and noticed that when I printed out a full report, my super benefit was broken up into a number of parts. These included tax-free, taxable — taxed, taxable component, taxed element and untaxed element. While I am some way off retirement, I was hoping you could explain what these components are and if I will need to pay tax when I access the money? Answer It is confusing trying to unravel the various components. Firstly, any amount showing as tax-free is exactly that — free of tax whenever it can be accessed. Typically this amount is made up of non-concessional contributions, government co-contributions and super downsizer contributions. The taxable component is usually broken up into two elements. An untaxed element is typically from an untaxed super scheme and this is usually a State or Federal government fund. In most cases, these will only apply to employees who joined the public service some time ago as most untaxed schemes are now closed to new entrants. Almost all superannuation funds used by Australians fall into the category of taxable — taxed. That means that the standard 15 per cent tax on a super fund’s earnings has been paid. The taxable element is potentially subject to tax on withdrawal, depending on the circumstances and who receives the money. If the superannuation money is released to the member because of permanent and total disability and terminal illness, mostly no tax is payable. Similarly, if the money is withdrawn after reaching the age of 60, no tax is payable. If the super is accessed by the member for any reason under the preservation age of 60 and excepting the above circumstances, tax is payable. Probably the most significant impact is when the member dies. If the death benefit is paid to a financial dependent of the deceased, typically a partner or dependent child, no tax is payable. If the benefit is paid to a non-financial dependent or the estate, a 15 per cent tax applies to the taxed element. If paid to an individual directly, normally, the Medicare levy also applies. Question During a face-to-face meeting at Centrelink I was told that, even though I had an up-to-date superannuation statement, the asset value of my account-based pension remained as per the statement issued in August 2024. This is despite the current balance being considerably less, largely because of pension payments, than the August 2024 figure. While I am not questioning the legitimacy of the process, it does seem skewed given that the pension payments must be accounted for. I also gleaned from the conversation that additional withdrawals or commutations from my account may not be treated in the same manner. I would be grateful if you can clarify this for me. Answer Judging by your question, it seems likely that you are dealing with a “grandfathered” ABP that was established before January 2015 where you were receiving a Centrelink income support payment at the time. Under old rules, a portion of the pension payment was deducted from the actual ABP payment received. The balance of the payment was counted towards the income test. Any large withdrawals paid as pension payments could have a significant impact because the income test is being applied to most of the payment. The effects of the income test might be greater than the asset test. From your description, this appears to be what has happened. A commutation, on the other hand, is not a pension payment and while it reduces the asset value it also changes future income test calculations. Your Centrelink position would only improve if you are receiving an asset-tested pension. In any event, it is worth exploring a change-over to a new ABP which would then be caught under the current rules. You may find that your overall Centrelink position is much more favourable and you might receive a higher payment from Centrelink. Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association