If you’re hoping to retire comfortably, making contributions into your super can be a great way to try and 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 you could see from building your super balance early.

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, and there are three types.

  • Compulsory contributions, also known as employer super contributions, which are made 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, 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), then claim a tax deduction later on these payments. Self-employed people often make tax-deductible personal contributions in place of employer contributions.

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 choose to make non-concessional contributions when they’ve reached their yearly concessional contribution cap.

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 before-tax and after-tax 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
  65 or over* $100,000 a year


* As at 1 July of the financial year in which the contribution is made.

From the 2019-20 financial year onwards you may be able to put more into super at a concessional rate of tax by using catch-up concessional contributions, if you’re eligible.

Things to know about super caps

  • If you exceed the super contributions cap, 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 after-tax contributions to your super, or you may be penalised.
  • If you’re 67 or over when the contribution is made, you’ll need to meet the work test or use the work test exemption. 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 after-tax super contributions (non-concessional contributions) made since 1 July 2017 can be claimed as a tax deduction when you’re doing your tax return, lowering your taxable income. This results in roughly the same tax benefit as concessional contributions, which are only taxed at 15%.

Claiming a deduction on after-tax contributions is especially useful 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 and claim a deduction on it, you’ll 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 before the end of the financial year. Your super fund should acknowledge this in writing before you claim a deduction on 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. These figures are indexed each year and may change in the future.

You don’t need to apply for the super co-contribution, but you will 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 the info provided in your tax return 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 fund.

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.

On top of that, if you can’t make further after-tax contributions into your own super (if you’ve reached your own contributions cap, for example), contributing into your spouse’s super fund instead could be a good idea, thanks to super contributions usually attracting a lower rate of tax than you pay on your income.

What to keep in mind

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