Is superannuation included in taxable income?

What is superannuation?

Superannuation (super) is a compulsory savings scheme through which a portion of your income is set aside for the years following your retirement. Super is calculated as a percentage of your base salary.

If you’re an Australian worker, your employer is required to make superannuation contributions on your behalf to a super fund of your choosing. These contributions are known as the super guarantee (SG).

The SG is the minimum percentage of your salary that your employer is required to pay into your super fund. In 2022 the SG is 10.5 per cent and is legislated to rise by 0.5 per cent each year, until it reaches 12 per cent in 2025.

Is super included in your taxable income?

Superannuation payments are not included when calculating your taxable income. This means you do not need to report the super you’re paid when lodging your tax return each financial year.

So, for example, if you were paid a salary of $80,000 plus your compulsory super payments (which would be $8,400) and you received no other income during the financial year, your assessable income would be $80,000 - not the combined total of $88,400.

In order to understand why super is not considered taxable income, you’ll need to realise your tax obligations.

What is taxable income?

Taxable income is money you’ve earned during the financial year that is subject to income tax. When you submit your tax return, the Australian Taxation Office (ATO) determines your assessable income, allowing for deductions on specific claims.

There are a number of earnings and payments that can fall under assessable income, including:

• employment income plus bonuses, overtimes and commissions
• interest from bank accounts
• rent from investment properties 
• dividends from equities
• capital gains
• other investment income streams
• pension payments
• cryptocurrency earnings

You may be able to claim tax deductions, reducing your taxable income, on a range of specific costs. Most deductions are typically work-related expenses related to your income.

Non work-related expenses may include gifts and charitable donations; the cost of managing tax affairs; income protection insurance; and interest, dividend and other investment income deductions.

How much tax should you pay?

Your taxable income is taxed according to the ATO’s rates for that financial year. The amount of tax you’ll pay is determined by which bracket your taxable income falls under. The following table outlines the tax rates for the 2022/23 financial year:

Source: ATO individual resident tax rates 2022/23.

It’s important to remember that the above rates do not include the Medicare levy of 2 per cent.

How is super taxed?

Super is considered a concessional contribution. These are before-tax contributions, such as when your employer makes SG contributions to your super fund. These are taxed at a rate of 15 per cent.

For those earning less than $250,000, you can contribute up to $27,500 each year to super. Those earning more than this threshold will pay 30 per cent tax on concessional contributions. 

You might also choose to make salary sacrifice contributions which means your employer will pay a part of your salary (before tax) into your super fund, thus reducing your taxable income and allowing you to boost your super.

You can also make voluntary contributions to your super from your after-tax salary. This is something you’ll need to set up for yourself rather than relying on your employer. However, you won't receive any concessional tax rates.

For those whose incomes are not substantial (under $37,000), the Australian government offers low-income super tax offset (LISTO) payments, ranging from $10 to $500, as a way of enhancing individual super contributions. 

All of your employer super contributions must be visible on your pay slips or remittance advice. Additionally, you can log on to your super fund’s website to view them or check your annual statement for total amounts paid.

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