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How much tax do I have to pay on superannuation contributions?

How much tax do I have to pay on superannuation contributions?

Working Aussies are expected to make regular superannuation contributions before retirement and for many, the process is taken care of by employers through the Superannuation Guarantee (SG). 

Whether or not super contributions are taxed often depends on whether tax has already been taken out of them. For example, if you choose to put money into super after income tax has already been taken out, it is considered an “after tax” or “non-concessional” contribution. However, if the money comes straight out of your salary before tax is taken out, it’s considered a “pre tax” or “concessional” contribution.  

Concessional contributions often attract a lower tax rate than income tax at 15 per cent. On the other hand, because non-concessional contributions are from your after-tax income they are not taxed a second time. 

How are pre-tax superannuation contributions taxed?

For most earners, concessional, or pre-tax super contributions, tend to be taxed at 15 per cent as long as you don’t contribute more than $25,000. Concessional contributions can include:

  1. Contributions made by your employers like SG contributions and those made through a salary sacrificing arrangement
  2. Contributions you make which you plan to claim a tax deduction on. 

Concessional contribution caps reset on June 30, which is the last day of the financial year. If the contributions received in your super fund by June 30 crosses the upper limit of $25,000, the excess amount will be taxed at the same marginal rate as your income. If you need to pay tax because your concessional contributions are over the specified limit, check if you can use your super funds to do so.

High-income earners may have to pay an additional 15 per cent under Division 293 if their wages and super contributions add up to over $250,000. Consider checking if you need to pay this Division 293 tax as well.

How are post-tax superannuation contributions taxed?

There are a few contributions that fall into the “after tax” category, such as contributing to super without claiming a tax deduction or having a spouse contribute to your fund. These are considered non-concessional earnings as your income has already been taxed at the marginal rate. 

However, there is a maximum amount of $1.6 million you can have in your retirement account. You could risk paying a hefty tax if you don’t check the available non-concessional contribution limit and stay beneath it. As per the ATO, your non-concessional contributions cap reduces to zero if your super fund balance was at least $1.6 million at the end of the previous financial year. Since your non-concessional contributions can include your spouse’s contributions to your super fund, they’ll need to know about your super fund balance as well.

However, if you are a member of a defined benefit super fund, you may have to deposit non-concessional contributions even if your super fund balance is over $1.6 million to comply with workplace agreements. Also, since you won’t be able to withdraw defined benefits, you’ll have to pay tax on the excess contribution from your pocket. Consider speaking to your super fund or a financial advisor if this affects you. 

Those with a super fund balance under $1.6 million may deposit as much as $100,000 annually in non-concessional contributions. Remember that exceeding this limit can mean paying tax at a 47 per cent rate. If you are under 65 and not at risk of crossing the super fund balance limit even after making this maximum contribution, you may qualify for a ‘bring forward’ arrangement. Such an arrangement allows you to make a much higher non-concessional super contribution and account for that in the next year or two. Note that if your super fund has received any concessional contributions above the $25,000 cap, the excess amount is a non-concessional contribution.

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This article was reviewed by Kate Cowling before it was published as part of RateCity's Fact Check process.

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Learn more about superannuation

What are concessional contributions?

Concessional contributions are pre-tax payments into your superannuation account. The payments made by your employer are concessional payments. You can also make concessional contributions with a salary sacrifice.

Is superannuation taxed?

Superannuation is taxed. It is generally taxed at 15 per cent. However, if you earn less than $37,000, you will be automatically reimbursed up to $500 of the tax you paid. Also, if your income plus concessional superannuation contributions exceed $250,000, you will also be charged Division 293 tax. This is an extra 15 per cent tax on your concessional contributions or the amount above $250,000 – whichever is lesser.

Can I transfer money from overseas into my superannuation account?

Yes, you can transfer money from overseas into your superannuation account – under certain conditions. First, you must provide your tax file number to your fund. Second, if you are aged between 65 and 74, you must have worked at least 40 hours within 30 consecutive days in a financial year. (Australians under 65 aren’t subject to a work test; Australians aged 75 and over cannot receive contributions to their superannuation account.)

Money transferred from overseas will generally count to both your concessional contributions limit and your non-concessional contributions limit. You will have to pay income tax on the applicable fund earnings component of any money transferred from overseas. You might also be liable for excess contributions tax.

How much extra superannuation can I add to my fund?

There is an annual limit of $25,000 for concessional contributions – that is, money paid by your employer and extra money you pay into your account through salary sacrificing. There is also a limit on non-concessional contributions. Australians aged between 65 and 74 have a limit of $100,000 per year. Australians aged under 65 have a limit of $300,000 every three years.

What are personal contributions?

A personal contribution is when you make an extra payment into your superannuation account. The difference between personal contributions and salary sacrifices is that the former comes out of your after-tax income, while the latter comes out of your pre-tax income.

How does superannuation work?

Superannuation is paid by employers to employees, at least once every three months. The ‘superannuation guarantee’ is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent of your salary. The guarantee 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.

Superannuation is generally taxed at 15 per cent. However, if you earn less than $37,000, you will be automatically reimbursed up to $500 of the tax you paid. Also, if your income plus concessional superannuation contributions exceed $250,000, you will also be charged Division 293 tax. This is an extra 15 per cent tax on your concessional contributions or the amount above $250,000 – whichever is lesser.

You can withdraw your superannuation when you meet the ‘conditions of release’. The conditions of release say you can claim your super when you reach:

  • Age 65
  • Your ‘preservation age’ and retire
  • Your preservation age and begin a ‘transition to retirement’ while still working

 

What are reportable superannuation contributions?

For employees, there are two types of reportable superannuation contributions:

  • Reportable employer super contributions your employer makes for you
  • Personal deductible contributions you make for yourself

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.

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.

What is salary sacrificing?

A salary sacrifice is where your employer takes part of your pre-tax salary and pays it directly into your superannuation account. Salary sacrifices come out of your pre-tax income, whereas personal contributions come out of your after-tax income.

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 contributions can SMSFs accept?

SMSFs can accept mandated employer contributions from an employer at any time (Funds need an electronic service address to receive the contributions).

However, SMSFs can’t accept contributions from members who don’t have tax file numbers.

Also, they generally can’t accept assets as contributions from members and they generally can’t accept non-mandated contributions for members who are 75 or older.

How are SMSFs taxed?

Funds that follow the rules are taxed at the concessional rate of 15 per cent. Funds that don’t follow the rules are taxed at the highest marginal tax rate.

What superannuation details do I give to my employer?

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 should also provide your tax file number – while it’s not a legal obligation, it will ensure your contributions will be taxed at the (lower) superannuation rate.