What is Crystallisation?

Before 1 July 2007, superannuation interests consisted of up to 7 different “ETP Components”, with each component separately taxed.  Under the Simplified Super system, superannuation interests consist of usually only two components:  the tax free (or tax exempt component), and the taxable component. 

Crystallisation is the process by which the ETP components are mapped to the tax free and taxable components.

To crystallise a superannuation interest the following steps need to be undertaken:

• determine the value of the superannuation interest immediately before 1 July 2007; and
• determine the dollar value of each ETP component of the superannuation interest on the assumption that the superannuation interest was paid out as a lump sum benefit immediately before 1 July 2007;
• the post June 83 component constitutes the taxable component; and
• all other ETP components constitute the tax-free component

The taxable component of the superannuation interest is simply the difference between the value of the superannuation interest and the tax free component.  Consequently, all positive earnings after 30 June 2007 will form part of the taxable component.

The tax free component will be expressed as a dollar amount and will not (except in exceptional circumstances – such as investment losses reducing the value of the superannuation interest below the value of the tax free component) be affected by earnings. 

The tax free component may be increased if and when further non-concessional contributions (which are not taxable) are made or benefits (which contain a tax free component) are rolled over into the superannuation interest.

The tax free component will be reduced when benefits are paid.  As each benefit must consist of a portion of the tax free/taxable components, the payment of a benefit – whether lump sum or pension – will proportionately reduce the tax free component of the superannuation interest from which the benefit is paid.