In Australia, employers have to contribute 9.5 per cent of your salary into your super account as mandatory Superannuation Guarantee (SG) payments. But with more people choosing to take early retirement or using their super to buy their first house, SG payments may not always be enough to secure a comfortable lifestyle if you have particular retirement goals planned. By choosing to make voluntary contributions, you could increase your super fund exponentially and live the life you always wanted when you retire.
What are after-tax superannuation contributions?
There are two main types of superannuation contributions; concessional and non-concessional contributions. Under concessional contributions, the employer will make SG payments and contributions on your behalf, based on your pre-tax income. Your pre-tax income generally includes salary sacrifice and any other contributions that have been claimed as tax deductions.
On the other hand, non-concessional contributions, also known as voluntary after-tax contributions, are based on your post-tax income or savings. These contributions are not subject to 15 per cent contribution tax as you have already paid tax on your income through concessional contributions. Most individuals use voluntary superannuation contributions as a definitive, simple and fast way to grow their super.
It’s important to note that you can make voluntary after-tax contributions to your super throughout the financial year via a regular transfer, or a one-off payment. However, it’s recommended that before you make any extra contributions, you should take your debt, and current and future financial commitments into account.
What are the after-tax superannuation contributions caps?
To make non-concessional or after-tax contributions, you can choose from two contributions caps:
- $100,000 per year
- $300,000 in a rolling three-year period
These superannuation voluntary contribution limits are applicable as of 2021 and are subject to change every year.
Why should you consider making after-tax superannuation contributions?
1. Grow your super
By simply contributing a small amount every week or month, you can make a significant difference in how much money you’ll have when you retire, especially when you factor in compound interest.
2. Claim tax deduction
By making additional contributions to your superannuation, in addition to preparing better for your retirement, you can also claim a tax deduction and reduce the amount of income tax you need to pay. However, if you choose to do this, you need to be aware that this will change your non-concessional contributions to concessional. This will make them subject to contribution tax at 15 per cent and considered in your yearly $25,000 cap on before-tax contributions.
3. Get a bonus from the government
Suppose your yearly income is less than $54,837 and you make after-tax contributions. In that case, the government could consider adding more to your total super balance by providing a co-contribution of up to $500 per year. Then you won’t be eligible for the co-contribution on any amount you claim as a tax deduction.
What should you consider while making after-tax superannuation contributions?
If you’re considering claiming a tax deduction for voluntary after-tax super contributions, there are a couple of restrictions that you should consider first.
- Make sure you’re aware of all the conditions before claiming.
- Ensure you provide your super fund with your tax file number to avoid paying any additional tax on your super or having your contributions returned to you.
- It’s crucial to understand that the Government doesn’t allow you to make any personal or non-concessional contributions to your super after you reach 75. So, make all the contributions you want before to ensure you’re able to live the life you dreamed about after you retire.