Super Contributions

Salary sacrificing, also known as salary packaging, is an alternative way that you can use employer contributions to boost your superannuation. It is an arrangement with your employer in which you sacrifice (package) part of your salary to have it paid into your super fund. You pay less tax on your income as the sacrificed amount reduces your taxable income. These concessional contributions are taxed at 15% in the super fund.

Salary sacrifice contributions are classified as employer super contributions rather than personal super contributions because they are additional to your super guarantee entitlements. For tax purposes, the sacrificed component of your total salary will not be treated as assessable income meaning it is not subject to PAYG withholding tax. The salary sacrifice super contributions must be included in your tax return as reportable super contributions.

There are extra tax implications if you exceed your concessional contributions cap, and you will be subject to Division 293 tax if your combined income and concessional super contributions is more than $250,000.

By adding your own personal super contribution, also known as a voluntary super contribution, you can boost your super. Personal contributions are on top of any compulsory super contributions that your employer makes on your behalf, and do not include salary sacrifice super contributions. Personal super contributions are classified as either concessional or non concessional.

Non concessional contributions are contributions made voluntarily from your after tax income. No tax deduction is claimed on your personal income tax return. Non concessional contributions are not taxed further in your super fund.

For 2023-24, the non concessional contributions cap is $110,000. For 2024-25, the non concessional contributions cap is $120,000

The last date a super fund can accept a non concessional contribution is 28 days after the end of the month that member turns 75. For example, if a person turns 75 on 1 December 2023, the last day of eligibility is 28 January 2024.

A contribution only counts in the year the super fund receives the contribution. It is not based on the date the contribution is made by the member.

The bring forward rule for non concessional contributions

The bring forward rule allows you to use up to 3 years worth of non concessional contributions caps over a shorter period. The bring forward contribution limit for 2023/24 is $330,000 and for 2024/25 it is $360,000.

Non concessional super contributions (as distinct from concessional super contributions) made prior to the commencement of an income stream will increase the tax free component of a member’s super interests. The upside being that there is generally no tax imposed on the tax-free component of super benefits paid out before retirement or to non dependants.

The bring forward rule is also attractive where that member would not be eligible to make annual non concessional contributions in future financial years (without the bring forward rule) due to failing the eligibility criteria in those future financial years. For example, by reaching the age of 75.

A member will trigger the bring forward rule where the following are true in the financial year in which the contribution exceeding the cap is made, the first year:

• Total non concessional contributions exceed the annual non concessional contributions cap.
• The total super balance is less than the general transfer balance cap.
• The member must not have used the bring forward rule within the last two financial years.
• The general transfer balance cap in the first year must exceed that person’s total super balance at 30 June of the income year just before the financial year of contribution by at least the amount of the annual non concessional contributions cap.

Total non concessional contributions in the first year exceed the non concessional contributions cap

The bring forward rule will only be relevant where the member contributes an amount into super that exceeds the annual non concessional contributions cap. There is no need to notify the super fund that the bring forward rule is being applied. The excess contribution will cause the rule to apply automatically (assuming the member is eligible).

Total super balance must be under the general transfer balance cap

The total super balance of a member must be under the general transfer balance cap (currently $1,900,000 in the 2023-24 income year) at 30 June of the income year before the first year.

For example, take Ellie who wants to utilise the bring forward rule to make non concessional contributions under the bring forward rule. She makes a non concessional contribution on 15 July 2023 of $150,000. The non concessional contribution exceeds the annual cap of $110,000 and therefore triggers the bring forward rule. Her total super balance at 30 June 2023 (i.e. the end of the financial year before the first year) is $1,000,000. Here, Ellie’s total super balance ($1,000,000) is less than the general transfer balance cap ($1,900,000) in the income year of contribution. Therefore, she satisfies this requirement of eligibility for the bring forward rule. If instead her total super balance at 30 June 2023 was $2,000,000 she would not be eligible to use the bring forward rule or make any non concessional contributions.

The person must not have used the bring forward rule within the last two income years
A member will be prevented from making further non concession contributions until any period of brought forward unused cap space has expired. This prevents a member from doubling up on non concessional contributions.

For example, assume a member brought forward two-years of unused cap space and made a non concessional contribution of $330,000. That member would have to wait two income years before they could make another non concessional contribution, as the non concessional contribution cap space for those two years has been brought forward and fully used, reducing the available cap space in those two years to nil.

The general transfer balance cap in the first year must exceed that person’s total super balance by at least the annual non concessional contributions cap
In essence, based on current caps and thresholds, a person must ensure that their total super balance is no more than $1,790,000 at 30 June of the financial year before the first year in order make a contribution that exceeds the annual cap. That is, $1,900,000 (being the transfer balance cap in the 2023-24 financial year) less $110,000 (being the annual non concessional contributions cap at 30 June 2023).

If we continue on with the above example of Ellie, her total super balance at 30 June 2023 must be less than $1,790,000 in order for her to be eligible to utilise the bring forward rule. If her total super balance at 30 June 2023 was between $1,790,000 and $1,900,000 she would only be permitted to make a non concessional contribution up to the annual cap amount of $110,000.

Further limitations on quantity of non concessional contributions
A member who is eligible to make non concessional contributions and to utilise the bring forward rule may not be at liberty to contribute three times the annual non concessional contributions cap in every instance. The maximum non concessional contribution under the bring forward rule is based on the above mentioned criteria and the member’s total super balance as set out in the below table:

Bring-forward cap first year (applying to 2023-24 and later years)

 Note that a member is permitted to make non concessional contributions up to the bring forward cap at any time within the bring forward period. However, the ability to make a contribution up to the bring forward cap in those future income years (within the bring forward period) is reliant on the total super balance of that member being under the general transfer balance cap at the end of the financial year prior to the year of contribution.

For example, Ciana is eligible to utilise the bring forward rule to contribute up to three times the annual non concessional contributions cap. She decides to make a $150,000 non concessional contribution in the 2023-24 income year and a $180,000 non concessional contribution in 2024-25 income year (the remaining maximum contribution she can make in the bring forward period). She will only be eligible to make the additional $180,000 contribution if her total super balance is under the $1,900,000 general transfer balance cap at 30 June 2024. If her total super balance at 30 June 2024 exceeds the general transfer balance cap, she may prefer to make the entire $330,000 non concessional contribution in the first year (i.e. prior to 30 June 2024).

There are complex methods to follow to calculate total super balance. See our Total Super Balance article for details.

Tax planning opportunities associated with the bring forward rule

The first major planning opportunity is to be strategic around the timing of engagement of the bring forward rule. It is the financial year in which the bring forward rule is triggered that determines the bring forward cap amount. The bring forward cap amount is based on the annual non concessional contributions cap in the first year and does not change if the annual non concessional contributions cap increases for an income year within the bring forward period.

For example, assume the annual non concessional contributions cap is $110,000 in 2023-24, $120,000 in 2024-25 and $130,000 in 2025-26. If the bring forward rule is triggered in 2023-24 the bring forward cap is $330,000 being three times the annual non concessional contributions cap in 2023-24.

You can see the bring forward cap is not increased to take into account the increase in the annual non concessional contributions cap in the 2024-25 and 2025-26 income years. The bring forward cap is not increased to $360,000 (being $110,000, plus $120,000, plus $130,000). Therefore, a member may consider it strategically preferrable to avoid triggering the bring forward rule until, for example, the 2024-25 income year where the bring forward cap would be $360,000 (3 x $120,000). This would enable the member to make additional non concessional contributions of $30,000.

The second major planning consideration was illustrated above. It involves a situation where a person uses the bring forward rule but makes contributions up to the bring forward cap amount in a future income year. For example, James triggers the bring forward rule but instead of contributing $330,000 (the bring forward cap amount) in the first year, he makes a $165,000 contribution in the first year and a further $165,000 contribution in the next income year.

As mentioned, non concessional contributions will only be permitted in an income year where the person’s total super balance (at 30 June before that income year) is less than the general transfer balance cap, even if the contribution is made within the bring forward period and does not cause the member to exceed the bring forward cap.

Problems can occur if a member has not exhausted the bring forward cap in the first year and it appears likely that their total super balance at 30 June will exceed the general transfer balance cap. To avoid this situation, a member with a total super balance which is approaching the general transfer balance cap could simply contribute the maximum bring forward amount in the first year (before the year in which the transfer balance cap is at risk of being exceeded).

Exceeding the non concessional contributions cap

If a member exceeds the cap, the first and most common solution is to obtain a release for the excess contribution plus 85% of the associated earnings. The associated earnings will be included in the member’s taxable income along with a non refundable tax offset of 15%. The alternative solution is for the excess non concessional contributions to remain in the super fund. In this instance, the excess will be taxed at the rate of 47%.

Concessional contributions are contributions made from your after tax income and claimed as a tax deduction on your personal income tax return.

If you earn less than $250,000 per annum these contributions are taxed at 15% in your super fund. If you earn above that, contributions are taxed at 30%.

To claim a deduction for your personal super contributions:

• you must satisfy the age restrictions (see the Super Work Test)
• you must give a valid notice of intent to claim to your super fund and your super fund must validate your notice and send you an acknowledgement

You cannot claim deductions for:

• contributions paid by your employer from your before tax income such as the compulsory super guarantee, salary sacrifice super contributions and other reportable employer super contributions
• a rolled over super benefit
• a benefit transferred from a foreign super fund
• first home super saved (FHSS) amounts you have contributed to your super fund
• contributions to a Commonwealth public sector super scheme in which you have a defined benefit interest
• downsizer contributions

If you’re between 67 and 74 years old, you need to meet the super work test to claim a deduction for your contributions.

If you are 75 years old or older, you can only claim a deduction for contributions you made before the 28th day of the month following the month in which you turned 75.

Concessional contributions cap

The concessional contributions cap is the maximum amount of deductible super contributions (including employer super guarantee contributions) that can be contributed to your super each year.

For 2023/24, the concessional contribution cap is $27,500. For 2024/25, the concessional contribution cap is $30,000.

To ensure you stay under the concessional contribution cap:

• Be aware of your concessional contributions cap, including any unused contribution cap amounts from previous years.
• Be aware of your total super balance.
• Keep track of the concessional contributions you, your employer(s) or others make on your behalf, particularly if you have more than one job or pay money into more than one super fund. Concessional contributions made to all your funds during a financial year are added together and counted towards your concessional contributions cap.
• Check when your employer pays super guarantee and other contributions and when they were received by your super fund. Contributions count towards a cap in the year your super fund receives them.
• If you are eligible to claim a tax deduction for your personal super contributions, the amount allowed as a deduction is included in your concessional contributions cap.

Concessional contributions bring forward rule

If you have unused concessional cap amounts from previous years, you may be able to carry them forward to increase your contribution caps in later years. You’re eligible to do this if you:

• have a total super balance of less than $500,000 at 30 June of the previous financial year
• have unused concessional contributions cap amounts from up to 5 previous years

The amount of the unused cap that you can carry forward depends on what you have contributed in previous years. You can carry forward unused cap amounts from up to 5 previous financial years, including when you were not a member of a super fund. Unused cap amounts are available for 5 years and expire after this.

Excess concessional contributions

If you exceed your concessional contributions cap, the excess concessional contributions (ECC) are included in your assessable income.

When your assessable income includes ECC:

• you may enter the pay as you go (PAYG) instalment system
• your existing PAYG instalments may be affected
• the increase in your assessable income may affect your obligations and entitlements in relation to the Medicare levy, Centrelink benefits and child support.

ECC are taxed at your marginal tax rate less a 15% tax offset to account for the contributions tax already paid by your super fund. That is, the amount of tax on the excess amount is reduced by 15%.

People aged between 67 to 74 years old must satisfy the super work test in order to claim deductions for super contributions. Under section 290-150(2) ITAA 1997, the conditions set out in section 290-165 must be met in order for a personal tax deduction to be claimed for a contribution to a superannuation fund. Section 290-165(1A) provides this condition:

“If you made the contribution during the period starting on the day you turn 67 and ending on the day that is 28 days after the end of the month in which you turn 75:

1. You must have been “gainfully employed” for at least 40 hours in any period of 30 consecutive days during the income year in which the contribution was made; or

2. If 1. is not satisfied, you must satisfy the following requirements:

• You were “gainfully employed” for at least 40 hours in any period of 30 consecutive days during the income year (the previous income year) ending before the income year in which the contribution was made;
• You had a total superannuation balance of less than $300,000 at the end of the previous income year;
• You have not deducted a contribution in the previous income year or any earlier income years on the basis of satisfying the requirements in this paragraph;
• No contribution made by you, or in respect of you, in the previous income year or any earlier income years, was accepted by a superannuation fund or an RSA under prescribed provision of regulations made for the purposes of the Superannuation Industry (Supervision) Act 1993 or the Retirement Savings Accounts Act 1997.”

Gainfully employed

Central to the above requirements is the term “gainfully employed”. This is defined in 995-1(1) as:

“Gainfully employed means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.” This definition would seem to exclude any unpaid work. The ATO has not provided any public documents that gives its opinion of what it means to be “gainfully employed”.

If we break up the definition into its component parts, it requires that a person be:

• Employed or self-employed.
• For gain or reward.
• In any business, trade, profession, vocation, calling, occupation or employment.

It is to be noted that there is nothing said in the definition about the quantum of gain or reward required. Further, the use of the word “any” in the third dot point and the following words result in the view that there is an extremely wide variety of activities that could be engaged in by the person “employed or self-employed”.

There are two ways of contributing to your spouse’s super:

• You may be able to split contributions you have already made to your own super by rolling them over to your spouse’s super known as a contributions splitting super benefit.
• You can make a super contribution directly to your spouse’s super, treated as their non concessional contribution, which may entitle you to a tax offset.

Splitting your contributions with your spouse
A contribution split is treated as rollover to your spouse and not a new contribution to them. It does not reduce the total contributions made for you or change its characteristics for contribution caps purposes.

To apply for a split on your contributions, you need to complete the Superannuation contributions splitting application or similar form provided by your fund. But before completing the application, please contact your super fund to check whether your fund offers contributions splitting, needs you to use a different application form and charges a fee for contributions splitting to recover costs. Please note that you can only apply once to split contributions made to a particular super fund per year.

If you are planning to split any part of your contributions with your spouse but you also want to claim a deduction for them, you need to give your fund the notice of intent to claim a deduction before applying to split the contributions.

Super contributions on behalf of your spouse
If your spouse is a low income earner, contributing to their super could benefit you both financially. If your spouse is under 75 years old and income is less than between $37,000 to $40,000 per annum, you may be eligible to contribute to their super fund and claim an 18% tax offset up to $540 through your tax return.

Contributions you make to your spouse’s super are treated as their non concessional contributions, whether you’re eligible for the super tax offset or not.

If you’re 55 years or older, you may be eligible to make a downsizer contribution of up to $300,000 into your super fund from the proceeds of the sale of your primary residence, if it was owned for 10 years or more. A downsizer contribution is a non concessional contribution, but it doesn’t count towards any of the contribution caps. However, it counts towards your transfer balance cap and this cap applies when you move your super savings into retirement phase. Please note that it is a one time option and doesn’t apply to the sale of any residences in the future. You must complete the Downsizer Contribution Form and make the contribution within 90 days of settlement.

Please note that if your home was only owned by one spouse and was sold, the spouse that did not have an ownership interest may also make a downsizer contribution, or have one made on their behalf, provided they meet all the other requirements.

To make a contribution:

• contact your super fund to check whether they accept downsizer contributions.
• you need to submit a Downsizer contribution into super form to your fund with or before your contribution is made. If you don’t, your fund may not be able to accept your contribution as a downsizer contribution.
• if you make multiple contributions to one or more super funds, you must provide a Downsizer contribution into super form for each contribution. The total of your contributions cannot exceed $300,000.
• contributions must be made to your super fund within 90 days of receiving the proceeds of sale. But in some circumstances, you may be able to request an extension of time.

You may be able to request an extension of time for example, where a delay has been caused by factors outside your control, such as ill health or a death in the family. However, an extension of time won’t be granted to allow you or your spouse to meet the age requirement. If it’s possible, an extension of time should be requested within 90 days of receiving the proceeds of sale.

You will be able to seek a review of any decision we make in allowing a longer period. If you are dissatisfied with the length of the extension, or a decision not to allow a longer period, you can lodge an objection on the Objection form.

If the ATO becomes aware that your contribution doesn’t meet the eligibility requirements, your fund will need to assess whether it could have been made as a personal contribution under their acceptance rules. If your contribution is accepted as a personal contribution, the amount will count towards your non concessional contributions cap. If your contribution can’t be accepted, the contribution amount will be returned to you by your super fund.

Note that penalties may apply if you made a false and misleading statement by incorrectly declaring you are eligible to make a downsizer contribution.

If you are a low income earner and make personal non concessional super contributions, you may be eligible for government super co contributions. This is basically just a government initiative to help low income earners save for their retirement whereby the government contributes up to $500 into your super fund. To be eligible you must also satisfy the 10% eligible income test meaning at least 10% of your income must be coming from employment or business sources, you are under 71 years old, and have less than the general transfer balance cap in your super fund on the last day of the financial year. To receive the co contribution, your total income for the relevant financial year must also be less than the higher income threshold.

When you lodge your tax return, the ATO determines the co contribution amount you are entitled to and pay it to your super fund. Most of the time, your co contribution will be paid directly to the super fund which you made your personal super contributions.

Co contributions can be paid directly to you if you are retired and no longer have an eligible super account and it can also be paid to the legal representative of a deceased account holder.

It is not mandatory to complete the Government super contributions labels in your tax return but if they are not completed you may not be able to receive your correct co contribution payment. If you have more than one super fund and you want your co contribution paid to a specific fund you will need to phone the ATO. It will be a great idea, when choosing a super fund, to check whether it both accepts personal and co contributions so it will help you boost your super savings in the future.

The ATO makes most super contributions payments between November and January each year for personal contributions made in the prior financial year. If the payment is not shown on your next fund member statement or is different from the amount you expected, please contact the ATO.

If the ATO is not able to make your co contribution within 60 days of receiving all the information needed, they will add interest to the amount to compensate for the delay. The interest is calculated daily using the base interest rate for the day.

The Super co contribution is not subject to tax when it’s paid to your super fund, also it’s not included as income in your tax return, and it is preserved in the super fund and can only be accessed when a condition of release has been met.

Reportable super contributions are an extra contribution made by your employer on top of the mandated employer super contributions. These contributions need to be reported as the ATO uses them to calculate a range of thresholds, tax concessions, deductions, levies and Centrelink benefits. Reportable super contributions are considered concessional contributions and therefore taxed at the rate of 15%.

Reportable super contributions include any:

• personal deductible contributions you make for which you claim an income tax deduction
• reportable employer super contributions your employer makes for you where you influenced the amount or rate of super your employer contributes, such as
  • contributions made under a salary sacrifice agreement
  • additional amounts paid to your super fund (for example, you directed an annual bonus to be paid to super)
  • an increased super contribution as a part of your negotiated salary package.

Reportable super contributions don’t include any compulsory contributions by your employer made under:

• super guarantee
• an industrial agreement
• the trust deed or governing rules of a super fund
• a federal, state or territory law.

If you are self employed, you don’t have to pay yourself super guarantee contributions, but you can make personal super contributions for your retirement. You cannot salary sacrifice as you are not an employee of yourself.

If you’re a sole trader or in a partnership you have the option to pay your own super. You can pay your voluntary contributions as a regular direct debit from your personal bank account or as a lump sum every now and then. You can decide whether you want to claim a tax deduction on your own super payments or not.

If you’re a contractor, it depends on your agreement or working arrangements with the business that you’re working for. You may pay your own or you may even be eligible for super guarantee contributions from the business.

To be eligible you must satisfy all the following:

• you or your employer pay concessional contributions (including super guarantee amounts) for the year to a complying super fund
• you earn $37,000 or less per year
• you have not held a temporary resident visa at any time during the income year (please note that New Zealand citizens in Australia are eligible for the payment)
• you lodge a tax return and 10% or more of your total income comes from business and/or employment, or you don’t lodge a tax return and 10% or more of your total income comes from your employment.

A deceased estate may be entitled to LISTO if a person dies. To be eligible the above eligibility criteria will be used but the income tests are applied as if the person has continued to earn income at the same rate for the whole year.

You can estimate your LISTO by multiplying your concessional super contributions for the year by 15% (round to the nearest cent).

Your LISTO will be paid directly to your super fund account based on your tax return and information form your super fund. If you don’t lodge a tax return, the ATO will work out your eligibility using the information from your super fund and other sources and then pay your LISTO directly to the super fund. Lastly, if you’ve reached your super preservation age and retired, you can apply to have your LISTO paid to you directly.