What are personal superannuation contributions?

What are personal superannuation contributions?

Whether you’re self-employed and paying your own super or receiving superannuation guarantee (SG) contributions from an employer, you can choose to make extra contributions to a super fund from your wages. Such contributions are called non-concessional contributions and are paid from your after-tax income. People tend to make extra contributions on top of compulsory employer payments to increase the money they have at retirement.

You can make these super contributions if your super fund balance was less than the transfer balance cap of $1.6 million at the end of the previous financial year. These are also different from the salary sacrifice super contributions that some employers may allow you to make, which are deducted from your before-tax wages.

Are there limits on personal superannuation contributions?

Typically, personal superannuation contributions limits are capped at $100,000 a year. But how much you can add also depends on the size of your super fund balance. Suppose your super fund balance was $1.5 million on July 1, 2019. You could then make the maximum personal super contribution, which is $100,000, to your super fund during the 2019-2020 financial year. However, you couldn’t have made any personal super contributions in 2020-2021 since your super fund balance would have touched $1.6 million on June 30, 2020. Note that the non-concessional contributions allowance of $100,000 may only be available to those older than 65 if they meet the criteria set by the Australia Taxation Office (ATO).

Depending on your super fund balance, you may be able to contribute more than the yearly limit if you choose to bring forward your super contributions. Someone with a super balance of $1 million at the end of the financial year may be able to contribute as much as $300,000, including personal super contributions for the next two financial years. If you exceed the super contribution limit, the ATO will send you options regarding next steps (also called a determination). Usually, you’ll need to withdraw the excess super fund balance or pay a 47 per cent tax on the excess contributions. 

Consider checking whether your super fund has specific rules that can prevent withdrawing super benefits. For instance, if you’re contributing to a defined benefit super fund, you may not be able to withdraw any benefits.

Can you claim a tax deduction for personal superannuation contributions?

If you are under the age of 65, you can often claim a deduction on personal super contributions that fall below the cap. However, you’ll need to confirm that your super fund accepts tax-deductible personal super contributions. For instance, you may be a member of a Constitutionally Protected Fund (CPF) or a super fund that has notified the ATO that member contributions are not tax-deductible. Also, you’ll need to submit a notice of intent to your super fund before you can claim a tax deduction on your contribution. If you’re splitting super contributions with your spouse, you’ll need to wait until your super fund has accepted your notice of intent before filing the super contributions splitting application.

If you are between 65 and 74, you can claim a deduction if you meet a ‘work test’. This generally means you need to work at least 40 hours in a 30 day (consecutive) period. Financial advisers and super funds can usually tell you more about the work test.

Keep in mind, tax-deductible personal super contributions are counted towards your concessional contribution cap, for which the maximum possible contribution is $25,000 in any financial year. It’s important to ensure you don’t end up crossing the contribution limit. Doing so can result in the excess amount added to your non-concessional contributions that are assessed at a much higher tax rate. Instead of paying a tax rate of 15 per cent on your super contributions, you could risk paying a tax of 47 per cent.

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Can I buy a house with my superannuation?

First home buyers are the only people who can use their superannuation to buy a property. The federal government has created the First Home Super Saver Scheme to help first home buyers save for a deposit. First home buyers can make voluntary contributions of up to $15,000 per year, and $30,000 in total, to their superannuation account. These contributions are taxed at 15 per cent, along with deemed earnings. Withdrawals are taxed at marginal tax rates minus a tax offset of 30 percentage points.

Voluntary contributions to the First Home Super Saver Scheme are not exempt from the $25,000 annual limit on concessional contributions. So if you pay $15,000 per year into the First Home Super Saver Scheme, you have to make sure that you don’t receive more than $10,000 in superannuation payments from your employer and any salary sacrificing.

How long after divorce can you claim superannuation?

You or your partner could be forced to surrender part of your superannuation if you divorce, just like with other assets.

You can file a claim for division of property – including superannuation – as soon as you divorce. However, the claim has to be filed within one year of the divorce.

Your superannuation could be affected even if you’re in a de facto relationship – that is, living together as a couple without being officially married.

In that case, the claim has to be filed within two years of the date of separation.

Either way, the first thing to consider is whether you’re a member of a standard, APRA-regulated superannuation fund or if you’re a member of a self-managed superannuation fund (SMSF), because different rules apply.

Standard superannuation funds

If your relationship breaks down, your superannuation savings might be divided by court order or by agreement.

The rules of the superannuation fund will dictate whether this transfer happens immediately, or in the future when the person who has to make the transfer is allowed to access the rest of their superannuation (i.e. at or near retirement).

Click here for more information.

SMSFs

If your relationship breaks down, you must continue to observe the trust deed of your SMSF.

So if you and your partner are both members of the same SMSF, neither party is allowed to use the fund to inflict ‘punishment’ – such as by excluding the other party from the decision-making process or refusing their request to roll their money into another superannuation fund.

This no-punishment rule applies even if the two parties are involved in legal proceedings.

Click here for more information.

Financial consequences

Superannuation funds often charge a fee for splitting accounts after a relationship breakdown.

Splitting superannuation can also impact the size of your total super balance and how your super is taxed.

Click here for more information.

How do you open a superannuation account?

Opening a superannuation account is simple. When you start a job, your employer will give you what’s called a ‘superannuation standard choice form’. Here’s what you need to complete the form:

  • The name of your preferred superannuation fund
  • The fund’s address
  • The fund’s Australian business number (ABN)
  • The fund’s superannuation product identification number (SPIN)
  • The fund’s phone number
  • A letter from the fund trustee confirming that the fund is a complying fund; or written evidence from the fund stating it will accept contributions from your new employer; or details about how your employer can make contributions to the fund

You might want to provide your tax file number as well – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.

What are government co-contributions?

A government co-contribution is a bonus payment from the federal government into your superannuation account – but it comes with conditions. First, the government will only make a co-contribution if you make a personal contribution. Second, the government will only contribute a maximum of $500. Third, the government will only make co-contributions for people on low and medium incomes. The Australian Taxation Office will calculation whether you’re entitled to a government co-contribution when you lodge your tax return. The size of any co-contribution depends on the size of your personal contribution and income.

What are reportable employer superannuation contributions?

Reportable employer superannuation contributions are special contributions that an employer makes on top of the regular compulsory contributions. One example would be contributions made as part of a salary sacrifice arrangement.

How can I increase my superannuation?

You can increase your superannuation through a ‘salary sacrifice’. This is where your employer takes part of your pre-tax salary and pays it directly into your superannuation account. Like regular superannuation contributions, salary sacrifices are taxed at 15 per cent when they are paid into the fund.

How do you pay superannuation?

Superannuation is paid by employers to employees. Employers are required to pay superannuation to all their staff if the staff are:

  • Over 18 and earn more than $450 before tax in a calendar month
  • Under 18, work more than 30 hours per week and earn more than $450 before tax in a calendar month

This applies even if the staff are casual employees, part-time employees, contractors (provided the contract is mainly for their labour) or temporary residents.

Currently, the superannuation rate is currently 9.5 per cent of an employee’s ordinary time earnings. This is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

Employers must pay superannuation at least four times per year. The due dates are 28 January, 28 April, 28 July and 28 October.

How is superannuation calculated?

Superannuation is calculated at the rate of 9.5 per cent of your gross salary and wages. So if you had a salary of $50,000, your superannuation would be 9.5 per cent of that, or $4,750. This would be paid on top of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

Is superannuation paid on unused annual leave?

If your employment is terminated, superannuation will not be paid on unused annual leave.

What fees do superannuation funds charge?

Superannuation funds can charge a range of fees, including:

  • Activity-based fees – for specific, irregular services, such as splitting an account after a divorce
  • Administration fees – to cover the cost of managing your account
  • Advice fees – for personal investment advice
  • Buy/sell spread fees – when you make contributions, switches and withdrawals
  • Exit fees – when you close your account
  • Investment fees – to cover the cost of managing your investments
  • Switching fees – when you choose a new investment option within the same fund

Is superannuation compulsory?

Superannuation is compulsory. Generally speaking, it can’t be touched until you’re at least 55 years old.

How does superannuation affect the age pension?

Most Australians who are of retirement age can qualify for the age pension. However, depending on the size of your assets and post-retirement income, you might be entitled to only a reduced pension. In some instances, you might not be entitled to any pension payments.

Is superannuation included in taxable income?

Superannuation is not included when calculating your income tax. So if you have a salary of $50,000, your assessable income would be $50,000, not $50,000 plus superannuation.

That said, superannuation itself is taxed. It is generally taxed at 15 per cent, although if you earn less than $37,000, you will be reimbursed up to $500 of the tax you paid.

What happens if my employer goes out of business while still owing me superannuation?

If your employer collapses, a trustee or administrator or liquidator will be appointed to manage the company. That trustee/administrator/liquidator will be required to pay your superannuation out of company funds.

If the company doesn’t have enough funds, in some cases company directors will be required to pay your superannuation. If the directors still don’t pay, the Australian Securities & Investment Commission (ASIC) might take legal action on your behalf. However, ASIC might decline to take legal action or might be unsuccessful.

So there might be some circumstances when you don’t receive all the superannuation you’re owed.