The Part of Your Balance That Is Never Taxed Again
The tax-free component of a superannuation interest is the part built from money that was already taxed on the way in: non-concessional contributions, downsizer contributions and a few other amounts. It is never taxed again, at any age, in anyone's hands — which makes its proportion the single most consequential number for what a non-dependant beneficiary eventually receives.
- The answer: Non-concessional contributions, the downsizer contribution and certain other amounts form the tax-free component, which is never taxed on withdrawal.
- The trap: You cannot withdraw the tax-free component selectively. Every payment draws both components in the account's fixed proportion.
- The recommendation: If the balance is likely to reach adult children, the proportion is what decides their tax — and it can only be changed while you are alive.
Where the AI summary above gets this wrong
"You can withdraw the tax-free part of your super first and leave the taxable part."
That's surface-true. Here's what it misses:
- The proportioning rule forbids it — Every withdrawal draws from both components in the same proportion as the account. There is no way to take one and leave the other.
- The proportion is fixed at pension commencement — Once an income stream starts, its proportions are set for the life of that account regardless of growth or drawdowns.
01 What creates it
Non-concessional contributions are the main source: money you contribute from after-tax income without claiming a deduction. Because tax has already been paid on it, it is not taxed again on the way out.
Downsizer contributions, government co-contributions, and certain pre-1983 and other historical amounts also form part of it. Concessional contributions and fund earnings do not — they form the taxable component.
That means a balance built entirely from employer contributions and salary sacrifice is almost entirely taxable component, which is the position most people are in without ever choosing it.
Insurance proceeds paid into a super account generally add to the taxable component too, because they are not contributions you made from after-tax money. A large death or disability payout can therefore shift the proportions of an account considerably at exactly the moment it matters most.
02 The proportioning rule
A withdrawal draws from both components in the same proportion as the interest they come from. A balance that is 20% tax-free produces payments that are 20% tax-free, whatever the amount and whenever it is taken.
For a pension, those proportions are measured at commencement and fixed for the life of the account. Growth afterwards does not dilute the tax-free share, which is favourable — the mechanics are in the commencement guide.
That is why a recontribution strategy has to happen before commencement to affect a pension's proportions, and why it cannot be applied retrospectively to an account already paying.
Shows: how a withdrawal splits between the tax-free and taxable components under the proportioning rule, and what the taxable part would cost a non-dependant beneficiary. Ignores: any untaxed element, growth after the proportions are fixed, and the Medicare levy beyond the rate you enter.
Source: ATO — Tax on super benefits
03 Why it matters most after death
After 60, every withdrawal from a taxed fund is tax-free regardless of the components, so the proportion makes no difference to you.
It makes a great deal of difference to a non-dependant beneficiary, who is taxed on the taxable component of a death benefit. The definitions and the rate are in the dependants reference.
Increasing the tax-free proportion is therefore an estate planning action rather than a retirement income one, and it has to be done during your lifetime and within the contribution caps.
The proportion is irrelevant to you and decisive for your children, which is why nobody notices it until it is too late to change. If your balance is heading to an adult child rather than a spouse, that number is the one worth working on — and it can only be worked on while you are alive.
FAQ
What is the tax-free component of super?
The part built from money already taxed on the way in — non-concessional contributions, downsizer contributions and certain other amounts. It is never taxed again on withdrawal, at any age or in anyone's hands.
Can I withdraw only the tax-free component?
No. The proportioning rule means every payment draws from both components in the same proportion as the account they come from.
When is the proportion fixed?
For a pension, at commencement — and it then applies for the life of that account regardless of growth. For an accumulation account it is recalculated at each withdrawal.
Sources
Regulator references
- ATO — Calculating components of a super benefit · Australian Taxation Office · 2026How a benefit splits into tax-free and taxable components, and why the proportions cannot be chosen.Last verified: 2026-09-07
- ATO — Tax on super benefits · Australian Taxation Office · 2026How super benefits are taxed on withdrawal, and how that changes with age.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.