So, you’ve assessed the state of your superannuation and have decided to focus on growing your super balance. That’s a great start – you’re already ahead of the majority of young adults who, according to the Financial Services Council1, do not regularly check their super balances and investment options.
With the right attitude, you can start to make some serious changes to your super and see yourself well on the way to a comfortable retirement. You’ve probably heard the term “boost your super” – but how can you do that? Well, let’s begin by looking at the different kinds of super contributions that can be made.
What is a concessional contribution?
Your concessional contributions are payments made into your superannuation each pay cheque before tax is deducted, meaning you save money on tax. Concessional contributions can be broken down into three categories:
- Superannuation guarantee – These are compulsory contributions made by your employer. The value of your superannuation guarantee matches a percentage of your salary. Currently, it is 9.5 per cent, however this will increase to 10 per cent on 1 July 2021 and will then increase by 0.5 per cent each year until it reaches 12 per cent in 2025.
- Salary sacrifice – You can also arrange to have a portion of your income paid directly into your super. This comes out of your salary at a rate determined between you and your employer.
- Personal contributions – you can choose to make additional contributions to your super from your take home pay and claim a tax deduction. If you’re planning to claim a deduction, make sure you let your fund know first.
What is the concessional contributions cap?
Currently, your concessional contributions within one financial year cannot surpass $25,000. However, from 1 July 2018, if your super balance is less than $500,000 at the end of the previous financial year and you haven’t made use of the full $25,000, you’ll be able to access the unused amount for the following five years. For example, if you only contributed $15,000 in one financial year, then you’ll be able to use the remaining $10,000 for up to five years going forward. The first year you can ‘carry-forward’ is from 1 July 2019 onwards.
Who pays tax on concessional contributions?
Your superfund will pay 15 per cent tax on your contributions made below the cap, unless you earn over $250,000 (including concessional contributions), in which case some or all above the limit will be taxed at 30 per cent.
What happens if I exceed the cap?
If you exceed the cap, then you’ll pay tax at your marginal income rate and may incur additional interest charges. Here are a couple of working examples:
- You earn $235,000 and you’ve chosen to make concessional contributions of $25,000 – making your total income $260,000. You’ll pay 30 per cent tax on the portion which exceeds $250,000 ($10,000) and 15 per cent on the rest ($15,000).
- You earn $100,000 and decide to contribute $50,000 to your superannuation in one financial year. The first $25,000 will be taxed at 15 per cent as it’s under the concessional cap, and the other $25,000 will be taxed at your marginal income tax rate as it will be deemed a non-concessional contribution.
What is a non-concessional contribution?
Non-concessional contributions include your after-tax contributions such as non-deductible personal contributions and spouse contributions. You can choose to make personal contributions to your super from your take home pay and not claim a tax deduction. In addition, you can contribute to a super fund on behalf of your spouse and claim a tax offset.
What is the non-concessional contributions cap?
You can make up to $100,000 per financial year in non-concessional contributions. If you’re under 65 and your total super balance is $1.4 million or less at the end of the previous financial year, you’ll be able to ‘bring forward’ up to $300,000 in total over a three year period. To view your total super balance check out your MyGov account.
What’s important to remember is that any concessional contributions that exceed the cap will count towards your non-concessional cap instead.
Who pays tax on non-concessional contributions?
You’ve already paid your marginal income tax on any non-concessional contributions.
What happens if you exceed the cap?
If you happen to exceed the non-concessional contributions cap you can either withdraw the excess amount, or you can elect to leave it in your account, where it will be taxed at the highest marginal tax rate. The ATO will provide you with the assessment and election notice.
What’s right for me?
For the best amplification of your super balance, make the most of both kinds of contributions. Maximise your concessional contributions within the limits and consider making regular deposits to your super as your budget allows. This way, you build your super quickly and save money on tax.
Understanding your superannuation payments can be confusing – but it doesn’t have to be! When you sign up to Club Plus Super, you have access to our bank of information and financial professionals to help you understand your account.
Still confused? Get in touch today for a consultation with one of Club Plus Super’s advisers at no cost.