When it comes to super contributions, there are different types, limits and benefits that you’ll want to be across.
If you’re hoping to retire comfortably, making contributions into your super may help you to boost the amount of money you have to live off after you finish working. And, the earlier you start, the greater the impact could be.
Types of super contributions
There are two types of super contributions, concessional and non-concessional.
- Compulsory contributions, which are what your employer pays on your behalf under the Superannuation Guarantee scheme, if you’re eligible.
- Salary sacrifice contributions, which are voluntary contributions your employer pays out of your before-tax income, but only if you’ve elected for them to do so.
- Tax deductible personal contributions, which are also voluntary contributions that you can make using after-tax dollars (such as when you transfer funds from your bank account into your super) and then claim a tax deduction on.
- Personal contributions you haven’t claimed a tax deduction on, which you’ve made voluntarily using after-tax dollars.
Super contribution caps
If you’re making contributions to your super, be aware that there are limits on the amount you can contribute each year.
The amount your employer pays into your fund (under the Superannuation Guarantee), what you might elect your employer to pay via a salary sacrifice arrangement, as well as personal after-tax contributions that you claim a tax deduction on, all count toward what’s called your concessional contributions cap.
Personal after-tax contributions that you don’t claim a tax deduction on will count toward your non-concessional contributions cap.
Here is a high-level summary of how much you can contribute each year.
|Contribution type||Your age||Contributions cap|
$25,000 per annum
$100,000 per annum and up to three years of annual caps ($300,000) under bring-forward rules
65 or over*
$100,000 per annum
* As at 1 July of the financial year in which the contribution is made.
Important things you should note
- If you exceed the super contribution caps, additional tax and penalties may apply.
- If you have super assets of $1.6 million or more as at 30 June of the previous financial year, you can’t make additional non-concessional contributions to your super, or you will be penalised.
- If you’re 65 or over at the time of making a contribution, a work test must be satisfied. However, Australians aged 65 and over, can make an after-tax ‘downsizer’ contribution to their super of up to $300,000 using the proceeds from the sale of their main residence, regardless of their work status, super balance, or contributions history.
Where you could benefit
Tax deductions on personal after-tax contributions
Personal after-tax super contributions made since 1 July 2017 can be claimed as a tax deduction when you’re doing your tax return.
Because personal contributions to your super fund (which you claim a tax deduction on) will only be taxed at 15%, this produces broadly the same tax benefit offered by a salary sacrifice arrangement.
This is of benefit if your employer doesn’t offer you the option to salary sacrifice, or if you receive some money that you’d otherwise pay tax on at your full marginal tax rate.
To make a personal after-tax super contribution, firstly you’ll need to make a personal contribution to your super and then lodge what’s called a ‘Notice of intent' to claim or vary a deduction for personal super contributions’ form with your super fund (within permitted timeframes).
Your super fund will acknowledge this in writing and then following the end of the financial year and using the written acknowledgement from your super fund, you can prepare and lodge your tax return.
Co-contributions from the government
If you’re a low to middle-income earner and have made an after-tax contribution to your super, which you haven’t claimed a tax deduction on, you might be eligible for a government co-contribution.
If your total income is equal to or less than $37,697 and you make personal after-tax contributions of $1,000 (and meet other eligibility criteria), you could receive the maximum co-contribution of $500.
If your total income is between $37,697 and $52,697 your maximum entitlement will reduce progressively as your income rises. Note, figures are indexed each year and may change in future.
Meanwhile, you don’t need to apply for the super co-contribution, but you will need to ensure that you have provided your tax file number to your super fund.
Then, once you’ve lodged your tax return, the Australian Taxation Office (ATO) will use the info provided in your tax return and the contribution information from your super fund to work out your eligibility, with any amount of co-contribution that’s owing to you typically deposited into your super fund.
The low income super tax offset
If you earn $37,000 or less annually, and you (or your employer on your behalf) make concessional super contributions, the government may refund the tax you paid on those contributions back into your super account, up to a maximum of $500 per year.
If you are eligible for the low income super tax offset, it will be automatically calculated by the ATO and deposited in your super account after you lodge your tax return.
The spouse contributions tax offset
If your spouse (husband, wife, or de facto) is a low to middle-income earner or not working, you might be eligible for a tax offset if you make after-tax contributions into their super.
To be entitled to this tax offset, eligibility rules apply, and the receiving spouse must be under the age of 65, or if they’re aged 65 to 69 they must meet work test requirements.
Generally, if you do make after-tax contributions to your spouse’s super fund, you can claim an 18% tax offset on up to $3,000 when completing your tax return at the end of the year, but the receiving spouse’s income must be $37,000 or less for you to qualify for the full tax offset and less than $40,000 for you to receive a partial tax offset.
On top of that, if you’re unable to make further after-tax contributions into your own super (for instance, you may have reached your own contributions cap), contributing into your spouse’s super may have benefits due to the favourable tax treatment that’s generally available through super.
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