Super Contributions and Tax
Concessional and non-concessional super contributions
Concessional contributions include employer contributions and salary sacrifice contributions, as well as deductible contributions made by self-employed workers.
Concessional contributions are taxed at 15%. For example, a contribution of $1,000 to your fund will have $150 deducted for tax, leaving $850 to be invested in your super fund.
There is a cap ($25,000 for the 2010/2011 tax year) on the amount of concessional contributions you can make to super. If you exceed this cap, you may have to pay additional tax of 30% plus Medicare levy.
Non-concessional contributions include your after-tax contributions such as non-deductible personal contributions and spouse contributions.
These are also called after-tax contributions because you’ve already paid income tax on the money before contributing it to your super.
No tax is payable on non-concessional contributions as long as the total of these contributions each year is below a set cap ($150,000 for the 2010/2011 tax year). Exceeding this cap will attract an extra 45% tax plus Medicare levy.
Employer contributions
If you are an eligible employee, your employer must by law pay super contributions on your behalf. This is called the ‘Superannuation Guarantee’ and is currently equal to 9% of your earnings.
You are an eligible employee if you are a full-time, part-time or casual worker, between 18 and 70 years of age, and earn more than $450 a month.
Your employer may contribute more on your behalf but that will depend on your conditions of employment.
Personal Contributions
You can choose to make personal contributions to your super in addition to what your employer is contributing. Personal contributions, which you pay out of after-tax income, are a good way to top up your super to maximise your end benefit.
If you are self-employed, you can claim your personal contributions to a super fund as a tax deduction.
Depending on your income you may be entitled to a co-contribution:/ from the government.
Salary Sacrifice Contributions
Salary sacrifice means instead of receiving your pay in full in your hand you arrange to have some of your pay invested directly into your super fund on your behalf. Because the contributions are taken out of your pay before income tax is deducted, you will pay less tax on your income. For example, if you earn $50,000 a year and opt to salary sacrifice $10,000, income tax will only be based on $40,000 which means you pay less tax. The $10,000 is paid to your super fund.
You’ll need to discuss with your employer to arrange a salary sacrifice contribution to super.
Spouse Super
You can contribute to a super fund on behalf of your eligible spouse and be able to claim a tax offset if they earn no or low income. This is a good way to increase total super benefits and at the same time save on tax.
Government Co-contribution
To help you boost your super, the government will in some cases contribute on your behalf.
If you make personal contributions and you earn less than $31,920 a year, you may be entitled to a co-contribution from the government, dollar for dollar up to a maximum of $1,000 a year.
If you earn over $31,920 but less than $61,920 you may still be entitled to co-contributions but the amount will be reduced based on your actual income and your contribution amount.
