If you’re hoping to retire comfortably, making contributions into your super could be a great way to try to boost the amount of money you have to live off after you finish working. What’s more, the sooner you start, the greater the impact could be.

Let’s take a look at the ins and outs of super contributions and the potential benefits.

What are super contributions?

A super contribution is money that’s deposited into your super account, either as an ongoing payment or as a one-off. Usually made by you or your employer.

 

Video transcript

We hear the words “super contributions” a lot, but what exactly are they?

A super contribution is an amount of money that is deposited into your superannuation account, either as an ongoing payment or as a one-off. Usually made by you or your employer.

There are two broad types of super contributions: 

  • The concessional contribution, also known as a before-tax contribution, is typically paid into your super account before any income tax is taken out, and includes super payments your employer makes, such as super guarantee and salary sacrifice contributions. As well as any personal payments you make into your super that you choose to claim as a tax-deduction. 
  • Then there’s the non-concessional contribution, which is also known as an after-tax contribution, because tax has already been paid on this money and includes any personal payments you have not claimed as a tax deduction.

The good news is it doesn’t matter how you contribute to your super, it will help grow your retirement savings.  Now here are a few important things you need to be aware of before making contributions into your super:

  • there are limits to how much you can add to your super every year. These are called contribution caps – and if you exceed these caps, additional tax and penalties may apply.
  • each type of contribution is taxed differently depending on your circumstance.
  • typically you won’t be able to access amounts you’ve contributed to super until you reach a certain age and retire.

To learn more about super contributions and how they work contact your super fund or visit the AMP or ATO websites. 

What types of super contributions can I make?

1. Concessional contributions

Concessional contributions are contributions made before tax, or personal contributions you claim as a tax deduction. There are three types:

  • Compulsory contributions are the before-tax contributions required to be made by your employer into a super fund, such as the Superannuation Guarantee scheme, if you’re eligible.
  • Salary sacrifice contributions are when you choose to have some of your before-tax income paid into your super account by your employer.
  • Personal deductible contributions (PDCs), are voluntary contributions you can make using after-tax dollars (such as when you transfer funds from your bank account into your super), then claim a tax deduction for these payments. These can be made by both self-employed people and employees. Concessional contributions will usually be taxed at 15% (or 30% if your total income exceeds $250,000). However, when compared to most personal income tax rates, making concessional contributions will typically result in an overall tax saving.

2. Non-concessional contributions

Non-concessional contributions refer to money you put into your super fund using after-tax dollars and don’t claim a tax deduction on.

Some people may choose to make non-concessional contributions when they’ve reached their yearly concessional contribution cap, following an inheritance or other windfall, or to receive a government co-contribution.

Super contribution caps

If you’re making contributions to your super, keep in mind that there are limits on the amount you can contribute each year. There are separate caps for concessional and non-concessional contributions.

Here’s how much you can contribute each year.

Contribution type Your age Contributions cap
Concessional All $25,000 a year
Non-concessional Under 65* $100,000 a year and up to three years of annual caps ($300,000) under bring-forward rules if you are eligible.
  65 or over* $100,000 a year


*Age determined as at 1 July of the financial year in which the contribution is made.

Things to know about super caps

  • If you exceed the super contribution caps outlined above, additional tax and penalties may apply.
  • From the 2019-20 financial year onwards your concessional contribution cap may be higher if you have unused concessional contribution cap amounts from previous years and you’re eligible to make catch-up concessional contributions.
  • 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 may be penalised.
  • The ability to use the bring-forward rules depends on your Total Superannuation Balance measured as at 30 June of the previous financial year.
  • 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.

Potential superannuation benefits

Tax deductions on personal after-tax contributions

Personal deductible contributions can be claimed as a tax deduction when doing your tax return, lowering your taxable income. This results in roughly the same tax benefit as salary sacrifice contributions, both of which are typically only taxed at 15%.

Claiming a deduction on after-tax contributions can be useful if:

  • you’re self-employed
  • your employer doesn’t offer you the option to salary sacrifice 
  • you receive some money that you’d otherwise pay tax on at your full marginal tax rate.

To make a personal deductible contribution and claim a deduction for it, you’ll first need to make a personal contribution to your super and then lodge a ‘Notice of intent to claim or vary a deduction for personal super contributions’ form with your super fund.

You will need to lodge this notice of intent before you lodge your next tax return, or before the end of the following financial year (whichever happens first). Your super fund will need to acknowledge this in writing before you can claim a deduction in your tax return. You will need to keep in mind that if you have commenced a pension or withdrawn money from your super account before lodging your notice of intent, this could result in your ability to claim a deduction being reduced or lost altogether.

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 less than $53,564 for the 2019-20 financial year, and you’ve made personal after-tax contributions of $1,000 (and meet other eligibility criteria), you could receive a co-contribution of up to $500.

You don’t need to apply for the super co-contribution, but you’ll need to provide your tax file number to your super fund. Once you’ve lodged your tax return, the Australian Taxation Office (ATO) will use it, and the contribution information from your super fund, to work out your eligibility. Any co-contribution that’s owed to you will usually be deposited into your super account.

Low income super tax offset

If you earn $37,000 or less a year, and you (or your employer) 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’re 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.

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 67, or if they’re aged 67 to 74, they must meet the work test or work test exemption 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. Your 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.

What to keep in mind

  • Be aware of super contribution limits and caps. You can find details of the limits via the ATO.
  • The value of your investment in super can go up and down. Before making extra contributions, make sure you understand, and are comfortable with, any potential risks.
  • The government sets general rules about when you can access your super. Typically, you won’t be able to access your super until you reach preservation age and meet a condition of release, such as retirement.
  • If you’re 67 or over and making contributions, you generally need to satisfy work test requirements and be under age 75.

Need help growing your super?

Speak to a financial adviser today.

Important information

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