Contributions to super – small steps to big things
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There are two primary types of contributions that can be made to your super account, concessional contributions and non-concessional contributions.
1. Concessional contributions include compulsory employer contributions, salary sacrifice contributions and personal contributions claimed as a tax deduction.
2. Non-concessional contributions include, but aren’t limited to, personal contributions that have not been claimed as a tax deduction (referred to as “after-tax contributions”). For more information on how to make after-tax contributions, continue reading this page.
For most accumulators, making concessional contributions can be an effective way to boost your super and reduce your assessable income. Concessional contributions include compulsory employer contributions, salary sacrifice contributions and personal contributions claimed as a tax deduction. Until 1 July 2017, employees were generally unable to claim a deduction for personal contributions to super, however if you’re eligible to contribute, you can now receive contributions from your employer, salary sacrifice and make personal contributions regardless of your employment status.
What are the potential benefits of making concessional contributions?
If you make a personal super contribution, you may be able to claim the contribution as a tax deduction and reduce your assessable income.
Concessional contributions will generally be taxed in your superannuation fund at the concessional rate of up to 15%4 instead of your marginal tax rate, which may be up to 47%5. Depending on your circumstances, making concessional contributions could result in a tax saving of up to 32% and enable you to increase your savings for retirement. Once in the superannuation system, the earnings are taxed at a maximum of 15%, with capital gains taxed at 10% if the assets are held more than twelve months.
What contribution caps apply to concessional contributions?
A cap applies to concessional contributions (including compulsory employer contributions) made to super. Since 1 July 2017, the cap is $25,000 for everyone. Penalties apply if you exceed the concessional contribution cap. Further information on concessional contribution caps is available by visiting the ATO website.
Who can make concessional contributions?
You can make personal super contributions (concessional or non-concessional) if you’re aged 64 and under, or if you’re 65 - 74 and meet the work test (which means you’re working at least 40 hours over 30 consecutive days in the financial year the contribution is being made).
The ability to claim a deduction for personal contributions is valuable for many people, particularly if you have made a capital gain or have other unexpected assessable income during the financial year.
How do you claim the tax-deduction?
To be eligible to claim the personal super contribution as a tax deduction, you need to submit a valid ‘Notice of Intent’ form to your super fund (including your SMSF if you have one). You’ll also need to receive an acknowledgment from the super fund before you complete your tax return, start a pension or withdraw or rollover money from the fund to which you made your personal contribution.
For more information, or to determine if you’re eligible, visit the ATO website and speak with your registered tax agent.
Please note that there are special rules for contributions toward a Defined Benefit interest. For more information, visit the ATO website.
What's the potential benefit of making after-tax contributions?
Making after-tax contributions to your super can be an effective way to increase your retirement savings. You can either make a one off payment or regular after-tax contributions to suit your financial circumstances. As these contributions are made from your after-tax income or savings, they don’t attract contributions tax, as you’ve already paid tax on your income or savings.
By setting up small, after-tax contributions today, you could boost your super balance – potentially without noticing a significant difference to your disposable income. Even better, you may be eligible to receive the Government’s co-contribution, or you could make contributions on behalf of your spouse, to further boost your position.
What contribution caps apply to after-tax contributions?
A cap applies to the amount of after tax contributions that you may contribute to super. Since 1 July 2017, the maximum after-tax contributions you can make are $100,0001 pa or $300,0001 by bringing forward two years’ worth of contributions. However, after-tax contributions can’t be made if you had a total super balance of $1.6 million2 or over on the 30 June of the previous financial year. If you exceed your contribution cap, you will be penalised. Further information is available by visiting the Australian Tax Office (ATO) website.
Who can make after-tax contributions?
You can make after-tax contributions if you’re aged 64 and under, or if you’re between age 65 and 74 and meet the work test (which means you’re working at least 40 hours over 30 consecutive days in the financial year the contribution is being made).
Why should I invest in super?
It’s easy to forget the true benefits of investing in super. It remains one of the most tax effective vehicles for investment, and it makes the goal of a comfortable and tax free retirement achievable for many Australians. The Association of Superannuation Funds of Australia (ASFA) provides a detailed description of what singles and couples who are relatively healthy and own their own home would need to budget per year to be able to enjoy either3:
- A modest retirement lifestyle that is considered better than relying on the Age Pension, but still only able to afford fairly basic activities.
- A comfortable retirement lifestyle that enables an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.
However, you may strive to have an even more luxurious lifestyle with frequent travel, living well without adjusting the lifestyle you’re accustomed to or the worry of outliving your savings. So why not take matters into your own hands and make sure you’re meeting your retirement goals? Regular contributions to super can do wonders to help you on your way to meeting these goals, and the sooner you start, the better.
1 Current for 2017/18 financial year. The bring forward rule is limited to those under age 65. For more details on the contribution rules, please refer to ato.gov.au.
2 Current for 2017/18. Total super balance includes super savings in accumulation accounts and income streams.
3 ASFA Retirement Standard 2018
4 Individuals with income for surcharge purposes (disregarding their reportable super contributions) and low-tax contributions above $250,000 in the 2017/18 financial year will pay an additional 15% tax on personal deductible and other concessional super contributions within the concessional contributions cap.
5 Includes Medicare Levy