As with any investment, there are important tax implications to consider. Keep in mind that the Government's proposed changes from 1 July 2007 will certainly ease the burden of super tax.

Contributions tax

If the money paid into your super has not already been taxed, it will attract a 15 per cent tax on the way into the fund. There is no contributions tax if your money has already been taxed.

Tax on earnings

The money you earn on your investments within the super fund will be taxed at a maximum 15 per cent, much lower than your marginal tax rate. The figure could be even lower if you take into account franking credits.

Lump sum

From 1 July 2007, there will be no tax on lump sum super or pension benefits paid to people age 60 and over, provided a condition of release has been satisfied.

Currently, the Australian Taxation Office calculates whether you are within your Reasonable Benefit Limits. Anything above that threshold is treated as an "excessive benefit". If you decide to take your super as a lump sum, the amount that makes up the excessive benefit will be taxed up to the top marginal tax rate plus the Medicare levy. The lump sum limit is $678,149. A higher limit may apply if you convert your super into certain types of pensions.

The good news is that planned changes from 1 July 2007 have abolished Reasonable Benefit Limits so the above will not apply.

Holding a number of super funds

If you have a number of different super funds in operation upon retiring, tax is calculated against all of your super holdings by the ATO. Each fund is required to forward your information to the ATO.