Tax Free vs Taxable Components of Super Explained

The words sound similar.

But the difference matters.

Every super balance in Australia has two parts:

Tax free component
Taxable component

These components affect:

How super is taxed when you withdraw it
How super is taxed when it is paid as a death benefit
Why strategies like recontribution exist

This guide explains the difference in plain English.

If you are here because you are researching recontribution strategies, start with the pillar here:
Superannuation Recontribution Strategy Explained

If you want to test a recontribution strategy using your own numbers, you can also use my
Recontribution Strategy Calculator

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Key Takeaways

• The tax free component usually comes from non concessional contributions
• The taxable component usually comes from concessional contributions and investment earnings
• Each withdrawal must contain the same proportion of both components. This is the proportioning rule
• Components often matter most for death benefits paid to adult children
• Understanding components is the foundation for a recontribution strategy

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Tax Free vs Taxable Components of Super

Here is the simplest way to think about it.

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Why You Should Care

For many people, this topic only becomes interesting later on.

Usually when one of these happens:

You are thinking about starting a pension
You are working through estate planning and who gets your super
You have heard about recontribution strategies and want to understand the mechanics
You have seen a super statement showing tax free and taxable amounts and want to know what it means

If none of that applies, you can still treat this as a good foundation topic.

If it does apply, understanding components helps you avoid confusion and avoid mistakes.

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What Is the Tax Free Component of Super?

The tax free component is the part of your super balance that has already been taxed.

In most cases it comes from non concessional contributions, which are contributions made from after tax money.

Some amounts can also be tax free for legacy reasons, particularly for older benefits that were converted under earlier rules.

Common examples of tax free component

• Personal non concessional contributions
• Spouse contributions that are treated as non concessional contributions
• Downsizer contributions
• Government co contributions, where applicable

On co contributions, here is a simple explainer:
Superannuation Co Contribution Explained

If you want to estimate how much you might receive, you can use my
Super Co Contribution Calculator

Spouse contributions are another common source of tax free component. Here is a guide that explains how they work:
Spouse Super Contributions Explained

If you want to check eligibility or estimate the offset, you can use my
Spouse Super Contribution Calculator

The important point is simple.

The tax free component is paid out tax free, regardless of:

Your age when you withdraw it
Who receives it as a super death benefit

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What Is the Taxable Component of Super?

The taxable component is the rest of your super balance.

In most cases it includes:

Concessional contributions such as Super Guarantee and salary sacrifice
Investment earnings on your super balance over time

A super fund may also hold an untaxed element, but most Australians are in taxed funds.

Common examples of taxable component

• Employer Super Guarantee contributions
• Salary sacrifice contributions
• Personal deductible contributions
• Investment earnings inside super

A simple way to think about it is:

Total balance minus tax free component equals taxable component.

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Why Components Matter for Withdrawals

For many Australians, withdrawals from super from age 60 are tax free if the money is from a taxed fund.

There are exceptions, such as some untaxed funds.

So you might wonder why components matter at all.

There are two main reasons.

First, if you withdraw super before age 60, components can affect how much tax is payable.

Second, components matter for death benefits.

In other words, they often matter more for the people you leave behind than they do for you.

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Why Components Matter for Death Benefits

When super is paid as a death benefit, tax depends on:

Who receives the benefit
Which component is being paid
Whether the fund is taxed or untaxed

Tax free components are always paid tax free.

Taxable components can be taxed when paid to non tax dependants, such as adult children.

This is the reason recontribution strategies exist.

If you want a clear explanation of death benefits tax, see:
How Much Tax Do Adult Children Pay on Super

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The Proportioning Rule

The proportioning rule is one of the most important rules to understand.

It applies whenever a benefit is paid from super.

Each withdrawal from super must contain the same proportion of tax free and taxable components as the account at that time.

You cannot choose to withdraw only the taxable component.

Example

Assume your super balance is:

$900,000 total balance
$600,000 taxable component
$300,000 tax free component

That means the account is:

67 percent taxable
33 percent tax free

If you withdraw $360000, the withdrawal must be made up of the same proportions:

$241,200 taxable
$118,800 tax free

This rule is why recontribution strategies often take time.

You are slowly changing the proportions by converting taxable amounts into tax free amounts through contributions.

If you want to see the full recontribution example, see:
Recontribution Strategy Example (How the Numbers Work)

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How Components Change Over Time

This part often surprises people.

Tax components are not fixed forever.

In accumulation phase

In accumulation phase, investment earnings generally increase the taxable component.

So even if you increase the tax free component through a recontribution, the taxable component can grow again over time due to earnings.

In pension phase

When you start an account based pension, the tax free and taxable proportions are set at the time the pension starts.

Those proportions are then generally locked in for that pension.

This is why recontribution strategies in retirement sometimes involve:

Recontributing
Then starting a new pension
Or commuting and restarting a pension so the proportions reset

You can read more about this in the pillar:
Superannuation Recontribution Strategy Explained

Age and contribution rules can also affect strategies that change components, particularly after age 75. If you want the age rules laid out clearly, see:
Recontribution Strategy Age Limits (Under 60 Over 65 Over 75)

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How This Links Back to Recontribution Strategies

A recontribution strategy works because:

Withdrawals must contain taxable and tax free amounts in proportion
Non concessional contributions are treated as tax free component
Over time, the taxable component reduces and the tax free component increases

That is the whole engine of the strategy.

If you want the full overview, see the pillar:
Superannuation Recontribution Strategy Explained

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FAQs

What is the tax free component of super?

The tax free component of super generally comes from non concessional contributions. It is paid out tax free regardless of your age when you withdraw or who receives it as a super death benefit.

What is the taxable component of super?

The taxable component of super generally includes concessional contributions such as Super Guarantee and salary sacrifice contributions, plus investment earnings. It may be taxed when paid to some beneficiaries, such as adult children.

What is the proportioning rule in super?

The proportioning rule means each withdrawal from super must contain the same proportion of tax free and taxable components as the account at that time. You cannot choose to withdraw only the taxable component.

Why do tax components matter for estate planning?

Tax free components are paid to beneficiaries tax free. Taxable components can be taxed when paid to non tax dependants such as adult children, which is why strategies like recontribution are sometimes used.