Super vs investing outside super: tax, access and the caps

Basics8 min read · updated 3 November 2026 · 17 sources

Super vs investing outside super is a trade between tax and access. Superannuation taxes contributions and earnings at 15% and pays out tax-free in retirement from 60, far below most people's marginal tax rate. The price is that the money is locked away until retirement, inside caps and rules that change often. Investing outside super keeps the money available, with a 50% discount on long-term capital gains. This article explains the rules for 2026–27 as of November 3, 2026, with amounts in Australian dollars.

How super is taxed

Employers pay the super guarantee of 12% of ordinary time earnings into your fund (ATO, super guarantee 2026). Since July 1, 2026, under Payday Super, the contribution has to reach the fund within 7 business days of each payday rather than once a quarter (ATO, Payday Super 2026).

Concessional contributions, which include the super guarantee, salary sacrifice and personal contributions you claim as a deduction, are taxed at 15% in the fund (ATO, contribution types 2026). If your income plus concessional contributions exceeds $250,000, Division 293 adds another 15% on the contributions above that line (ATO, Division 293 2026). Earnings in the fund are taxed at up to 15%, and gains on assets held for at least 12 months get a one-third discount, an effective 10%. Once the money supports a retirement income stream, its earnings are tax-free (ATO, how super funds are taxed 2025). The amount you can move into this tax-free retirement phase is limited by the transfer balance cap, $2.1 million from July 1, 2026 (ATO, transfer balance cap 2026).

What $10,000 of salary becomes

For 2026–27, resident tax rates are nil up to $18,200, 15% up to $45,000, 30% up to $135,000, 37% up to $190,000 and 45% above, plus the Medicare levy of 2%. The lowest rate fell from 16% in 2025–26 and falls again to 14% from 2027–28 (ATO, resident tax rates 2026). Against these rates, salary sacrifice into super saves tax for almost everyone above the tax-free threshold. The table shows what is left of $10,000 of pre-tax salary taken as pay, at the marginal rate including the Medicare levy, and paid into super instead, after the contributions tax.

At $260,000, Division 293 raises the contributions tax to 30%, yet super still keeps $1,700 more. At $40,000 the gain is small, and the money is locked up for decades in exchange. At incomes of $37,000 or less, the low income super tax offset refunds the contributions tax, up to $500 a year (ATO, LISTO 2026).

Earnings: 15% versus your marginal rate

The contribution caps

Concessional contributions are capped at $32,500 a year from July 1, 2026, up from $30,000. The cap includes your employer's super guarantee, so the room for salary sacrifice is the cap minus what your employer pays. With a total super balance below $500,000 on the previous June 30, you can also use unused cap amounts from the last 5 years (ATO, concessional cap 2026).

Non-concessional contributions from after-tax money are capped at $130,000 a year, or $390,000 at once under the bring-forward rule if your total super balance is below $1.84 million; at a balance of $2.1 million or more, the cap is nil (ATO, non-concessional cap 2026). These contributions are not taxed on the way in, but their earnings are taxed like the rest of the fund.

Access: the price of the tax break

Super is preserved until you meet a condition of release. For anyone born from July 1, 1964, the preservation age is 60: you can access super once you have reached it and retired, and at 65 even while still working (ATO, withdrawing super 2026). Money outside super is available at any time, which matters for three goals: a home deposit, a career break and early retirement.

For a first home, the First Home Super Saver scheme lets you withdraw voluntary contributions of up to $15,000 a year and $50,000 in total, together with the earnings on them (ATO, First Home Super Saver 2026). For early retirement, a portfolio outside super has to bridge the years until 60.

Large balances: Division 296

From July 1, 2026, Division 296 raises the tax on earnings for large balances: the total rate on earnings for the part of a balance between $3 million and $10 million is 30%, and 40% above $10 million. Both thresholds are indexed to inflation (ATO, Division 296 2026). The tax applies only to realized earnings; the original design, which would also have taxed unrealized gains, was revised in October 2025 (Treasurer, super reforms 2025).

The Retirement Income Review of 2020 found that a balance of $5 million can receive earnings tax concessions of around $70,000 a year (Retirement Income Review 2020). For most savers, Division 296 is irrelevant. For the few it affects, it reduces but does not remove the advantage: 30% is still below the top marginal rate of 47% including the Medicare levy.

Government top-ups for low incomes

Two government payments help lower earners. The low income super tax offset refunds 15% of concessional contributions, up to $500, for incomes of $37,000 or less; from July 1, 2027, the maximum rises to $810 and the income limit to $45,000 (ATO, LISTO 2026). The super co-contribution adds 50 cents for each dollar of after-tax contributions, up to $500, for incomes below $49,293 in 2026–27, phasing out up to $64,293 (ATO, government contributions 2026).

A practical split

1. Emergency reserve and short-term goals outside super: money for the next few years should not be locked away.
2. A first home: consider the First Home Super Saver scheme for part of the deposit.
3. Salary sacrifice up to the concessional cap once the reserve is in place, especially above $45,000 of income, where the marginal rate including the Medicare levy is 32% or more.
4. Incomes below $49,293: an after-tax contribution of $1,000 earns the full co-contribution.
5. Early retirement: a portfolio outside super large enough to bridge the years until 60.

Common mistakes

• Breaching the concessional cap by forgetting the employer's super guarantee.
• Locking away money you need before 60.
• Ignoring the carry-forward rule: with a balance below $500,000, unused caps from the last 5 years can absorb a large contribution in a year with high income.
• Overlooking fees: high fees in a fund or on an investment platform eat into the tax advantage.
• Assuming the rules stay the same: caps, thresholds and taxes on super have changed many times.

This article explains general Australian rules for 2026–27 as of November 3, 2026, and is not financial advice. Super rules depend on your age, balance and fund; check the details with your fund or the ATO.

This article explains a method; it is not investment or tax advice. Worked examples are simplified and rounded. All terms in the glossary.