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Your $3.8 million tax-free trust

Many of our listeners say that the amounts we discuss in our podcast episodes are much higher than what they have in their super. If this is you, you are not an anomaly! We just want to show the maximum amount when we give examples, but these numbers are certainly not an average of what our clients and listeners have in their super or bank accounts.

In today’s topic, we are discussing 0% taxed super income streams. A 0% taxed super income stream is essentially the same as a tax-free trust fund. 0% tax is levied on the rate of return, and 0% tax is levied on any income drawn out of the fund, assuming you are aged over 60.

Let’s go back to basics first. What is a 0% taxed super income stream? It is a super fund that has been converted into a 0% tax fund. Before this phase, most of us have our super funds in an accumulation phase, which is taxed at 15%. When you meet a condition of release, many people think this just means they have access to their super. But, it also means you can convert to a 0% tax version of your super. We like to think of this is as a hidden benefit of being able to keep money in super without paying tax.

This can be confusing because the account can have a multitude of names. ‘Super income stream’ is one. ‘Account-based pension’ is another, as well as ‘allocated pension’. On top of that, your super fund may call it something else entirely. What’s important to remember is that this is completely different to the Age Pension provided by Centrelink.

When you become eligible to convert your money into a 0% taxed super income stream environment, there are some limits as to how much you can open these accounts with. In the current 2023/24 financial year, the limit is $1.9 million per person, which is $3.8 million in total for a couple; hence the ‘$3.8 million tax-free trust’ title. Your money is allowed to grow beyond this amount due to its compounding nature, however you cannot add more to it above this limit.

For example, if an individual had $1 million in their super, they would not be able to access it until they meet a condition of release. While in accumulation phase, the account is earning a rate of return internally which is then taxed at 15%. Once the person meets the eligibility criteria to meet a condition of release, they are able to convert their $1 million super fund from accumulation phase into a tax-free environment. They'll still earn the same rate of return, but 0% tax is levied. If the person were to draw this return each year as income, assuming they earned a rate of return of 8% pa, they could draw an $80,000 per year income and still keep their balance at $1 million. Let's say this person used to earn a salary of $80,000 per year, they would only keep $61,933 after paying income tax; whereas in this tax-free environment, they'd keep $80,000. A huge difference!


Australia has one of the highest income tax rates in the western world. It’s higher than the UK and US. But, in our opinion, it’s also one of the most generous systems when it comes to our retirement.

Going back to our first point, it’s a fair assumption to make that most people aged 60 don’t have $1.9 million, or at least this is often the case from what we have seen. This is where we do our best work, looking at other assets we can add and how to enhance this amount for people coming up to retirement. You need to be aware of things like capital gains tax and government mandates on income limits under 65, and the need to draw 4% from your account balance each year. Yes, the 4% is a minimum, not a maximum. And once you hit the 65-74 age bracket it goes up to 5%, and from the ages of 90-94, 11% needs to be drawn out. This doesn’t mean you need to spend that much; you can put it into a bank account or invest that money elsewhere.

It is important to know that income drawn is not guaranteed for life, that is, the account may run out; so maintaining a good rate of return is important.