Making extra superannuation contributions is a great way to boost your retirement savings. Even small amounts add up over time and it can also reduce the amount of tax you need to pay. This article discusses various types of super contributions and how they affect your tax.
Super Guarantee Contributions
Employers are required to pay super guarantee (SG) contributions for their employees. From 1 July 2023, employers are required to contribute 11% of their employees’ ordinary time earnings into super. SG contributions are employer contributions and taxed at 15% in the superannuation fund and count towards your concessional contribution cap.
Salary Sacrifice 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.
Personal Super Contributions
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
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.
The ‘bring forward’ rule age limit is 75 years old. This rule allows you to use up to 3 years’ worth of non concessional contributions caps over a shorter period.
If you are 75 years old or older, you cannot make non concessional contributions after the 28th day of the month following the month in which you turned 75.
Concessional Contributions
Concessional contributions are contributions made from your after tax income and claimed as a tax deduction on your personal income tax return. For 2023/24, the concessional contribution cap is $27,500 per year. If you earn less than $250,000 per annum these contributions are taxed at 15% and if you earn above that, contributions are taxed at 30%.
To claim a deduction for your personal super contributions, the following must be met:
- you satisfy the age restrictions (see the Super Work Test)
- you gave a valid notice of intent to claim in the approved form to your super fund
- your fund has validated your notice of intent form and sent you an acknowledgement
- your super fund was not a
- Commonwealth public sector super scheme with a defined benefit interest
- constitutionally protected fund (CPF) or other untaxed fund that would not include your contributions in their assessable income
- super fund that notified the Commissioner before the start of the income year that they elected to treat all member contributions to the super fund as non deductible and defined benefit interest within the super fund as non deductible.
Note that 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
- a super fund that would not include the contribution in their assessable income, such as an untaxed fund or a constitutionally protected fund
- other super funds or contributions specified in the regulations
- downsizer contributions
If you’re between 67 and 74 years old, you need to meet the 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.
Super Work Test
To satisfy the work test, you must work at least 40 hours during a consecutive 30-day period each income year.
However, if you don’t meet the above condition, you can use the exemption to the work test on a one-off basis if you have:
- satisfied the work test in the income year preceding the year in which you made the contribution
- a total super balance of less than $300,000 at the end of the previous income year
- not relied on the work test exemption in a previous financial year.
Spouse Super Contributions
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.
Downsizer Super Contributions
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.
Super Co Contributions
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.
| Year | Low income threshold (Maximum co contribution of $500)1 | High income threshold (Co contribution phased out to nil)2 |
|---|---|---|
| 2022 – 23 | $42,016 | $57,016 |
| 2023 – 24 | $43,445 | $58,445 |
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.
Low Income Super Tax Offset
If you earn up to $37,000 per year, you may be eligible to receive a low income super tax offset (LISTO) up to $500. It is 15% of the concessional (before tax) super contributions you or your employer pays into your super fund up to a maximum of $500. This is designed to ensure that low income earners generally don’t have to pay more tax on their super contributions than on their take home pay.
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.
Tax on Super Contributions
The tax paid on your super contributions depends on whether the contributions are concessional or non concessional, whether you exceed the contribution caps and if you are a high income earner.
Super paid by your employer into your super fund is taxed at 15% same with salary sacrificed contributions, also known as concessional contributions. But there are exceptions to this such as if you earn $37,000 or less, a tax paid back into your super account through low income super tax offset (LISTO) and if your combines income and super contributions exceed $250,000, you pay an extra 15% called Division 293 tax.
If you make contributions from your after tax income also known as non concessional contributions, you don’t pay any tax on your contributions.
Super Contribution Caps
Contribution caps are the limits on how much you can pay into your super fund per year without having to pay extra tax.
| Year | Concessional contributions | Non concessional contributions | |||
|---|---|---|---|---|---|
| Amount | Eligibility | Amount | CGT Amount | ||
| 2022 – 23 | $27,500 | all ages | $110,000 | $1.65m | |
| 2023 – 24 | $27,500 | all ages | $110,000 | $1.705m |
Concessional Contributions Cap
The concessional contributions cap is the maximum amount of before tax contributions you can contribute to your super each year without contributions being subject to extra tax. The concessional contributions cap is currently $27,500.
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 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 a member of an unfunded defined benefit or constitutionally protected fund, be aware of how concessional contributions to these funds are treated.
- Check if your employer pays costs on your behalf to your fund, such as administration fees and insurance premiums. These amounts are included in your concessional contributions cap.
- 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.
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.
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%.
Non Concessional Contributions Cap
The non concessional contributions cap is the maximum amount of after tax contributions you can contribute to your super per year without your contributions being subject to extra tax. The non concessional contributions cap is currently $110,000.
To ensure you stay under the non concessional contribution cap:
- Be aware of your non concessional contributions cap, including your eligibility for the bring forward arrangement.
- Be aware of your total super balance.
- Keep track of the amount of non concessional contributions you, your employer, or others make on your behalf.
- If you have more than one job, or pay money into more than one super fund, include all your contributions when working out your annual contributions. The total of all non concessional contributions made to all your funds during a financial year count towards your non concessional contributions cap.
- If you go over the concessional contributions cap, your excess concessional contributions will count towards your non concessional contributions cap unless you release them from your super fund.
- Any amount you withdraw and re contribute to your super fund is counted as a new non concessional contribution, unless you have claimed and been allowed a deduction for this amount or it is a re contribution of COVID 19 early release superannuation amount.
- You are only eligible to bring forward the next 2 years of contributions if you are under 75 years (67 years for 2021 22, 65 years for 2020 21 and prior years) on 1 July of the first financial year in which your total super balance on 30 June of the previous financial year was less than $1.48 million (from 1 July 2021, and $1.68 million from 1 July 2023).
Total super balance determines the bring forward cap
The amount of the non concessional contributions cap you can bring forward depends on your total super balance (TSB).
| Total super balance on 30 June of previous year | Non concessional contributions cap for the first year | Bring-forward period |
|---|---|---|
| Less than $1.68 million | $330,000 | 3 years |
| $1.68 million to less than $1.79 million | $220,000 | 2 years |
| $1.79 million to less than $1.9 million | $110,000 | No bring-forward period, general non-concessional contribution cap applies |
| $1.9 million or more | nil | Not applicable |
Reportable Super Contributions
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.
Self Employed Super Contributions
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.
This article is for general information only. It does not make recommendations nor does it provide advice to address your personal circumstances. To make an informed decision, always contact a registered tax professional.