The Tax Office And Superannuation funds, How Are They Taxed?
I remember working as Human Resources Manager of a medium contractors company and seeing the faces of new workers when they received their first pay check. Their eager eyes scanned the sheet looking for the magic number that would tell them how much they would take home and how much they could spend at the pub on the way home. The order of priorities changed depending on the worker in question. They would invariably lay their eyes first on the larger gross sum and then with tears nearly in their eyes hover over to the net wage once social security, super and tax were discounted.
The company I worked at was situated in Gibraltar very close to the Spanish border. Many workers would stream from Spain in search of higher wages. They soon realized that the wages were not the only thing that was higher in Gibraltar, taxes could hold their own. The word passed on quickly and the first or maybe second question workers would ask would be what will my net wage be. Of course that would depend on their age, married status, number of kids and other factors that regulated their tax code. Skilled workers would invariably ask for a minimum take home wage independent of their tax code and other costs. And who could blame them.
When you are calculating how much you will receive from your super fund that is a great question, how much will I get after tax and costs.
The answer as with the construction workers is, it depends. These are the factors that will determine your final super fund sum.
- The part of your payout that is still to be taxed, called the taxable component.
- The age you are when you receive the payout.
- The method of payment, whether it is as a lump sum or as a monthly pension.
Not surprisingly most of your super fund will be taxable. However if you worked for the public sector or you transferred another pension account to your super fund it is possible that some of your super fund component has already been taxed.
There are also contributions of your super fund that are exempt from tax and will be untaxed when you cash in your superannuation fund.
How old you are when you receive the super fund will also determine the rate of interest you pay. If you wait for retirement age you will pay less tax than if you cash in as soon as you reach release age or even worse if you do so earlier.
Working on the concept that a dollar today is worth more than a dollar tomorrow you will also pay more tax if you receive your whole super fund in one lump sum or you take it as a monthly pension.
Take into account these factors when planning your retirement and your super fund, a little forethought can save you hundreds if not thousands of dollars.