Superannuation is a fantastic scheme that tucks money away into a separate account for use later in life. If you work for an employer, this money is often automatically allocated to your nominated Super account from each pay package you receive. Additionally, you may choose to add money to Super yourself. Regardless of the way this money is deposited in your Super, you will be paying tax on it.
The amount of tax paid on super contributions is generally lower than the amount of income tax that’s charged. For this reason, when an individual receives a lump sum of money, they may choose to deposit it into their Super.
Furthermore, if you decide to make Super contributions from your after-tax income, you may also be eligible to claim a tax deduction on them. This could mean extra money in your pocket come next tax return.
Without extensive knowledge about Superannuation and the differing types of contributions, what exactly can be claimed as tax deductible can be complicated. To help you understand exactly what you can claim, we’ve put together a comprehensive guide on Super Contributions Tax.
How much Superannuation should I be paying and what am I being taxed on this amount?
To start off, we’ll break down the basics. The minimum amount of Superannuation an employee should receive from an employer is 10% of their basic wages – this is known as the Super Guarantee. This amount only kicks into effect if the employee is hired by the company (not a contractor) and earns over $450 per calendar month. You can be a casual, permanent part time or full time employee to be eligible for Super Guarantee – it’s the earnings of $450 per month rather than your employment type that determines this.
Superannuation is usually deducted from an employee’s pay each time they are paid. It must be paid into the employee’s Super account at least quarterly. It can be paid at more regular intervals, if the employer prefers.
Generally, Superannuation payments are taxed at 15% if the employee’s income is under $250,000 p.a., or they pay extra tax at 30%if their annual income is over $250,000.
What happens if I pay more than this amount?
If you’d prefer to put more money into your Super account, this is entirely possible. This is also where you may be able to reap the benefit of claiming a tax deduction on Super contributions.
Basically, there are two types of Super contributions – before tax contributions (concessional contributions) and after tax contributions (non-concessional contributions). The former is the traditional type of Super contribution that’s usually automatically paid by your employer. The latter is a voluntary deposit into your Super account. This is the type of contribution that you may be able to claim a tax deduction on.
How are non-concessional Super contributions made?
Non-concessional Super contributions are sometimes known as personal Super contributions. These voluntary payments could come from your savings account, a lump sum payment you’ve received or an inheritance.
Generally, this money has already had tax paid on it, so when you deposit this money into your Super account you shouldn’t have to pay tax again (or you’ll essentially be paying tax twice). This is where the tax deduction comes into play.
The amounts that are being deposited into your Super generally will have been taxed at your marginal tax rate (you can see tax rates below) but because the money is going into your Super, you’re only required to pay 15% tax on them. The difference is the potential tax deduction amount.
Here are the current marginal tax rate percentages:
Income thresholds Rate Tax payable on this income
$0 – $18,200 0% Nil
$18,201 – $45,000 19% 19c for each $1 over $18,200
$45,001 – $120,000 32.5% $5,092 plus 32.5c for each $1 over $45,000
$120,001 – $180,000 37% $29,467 plus 37c for each $1 over $120,000
As you can see, if you’re earning over $18,200 per financial year, the tax you’ll be paying is higher than the 15% tax charged when money is deposited into your Super account.
Tips on making non-concessional Super contributions and claiming deductions
The benefits involved with making additional personal Super contributions may seem too good to be true; and can be if you don’t know the rules properly. Don’t get caught out making the wrong move with additional personal Super contributions, or the advantage of them may be negated. Below are some very important tips to follow when considering making non-concessional Super contributions.
There are Super contribution caps
This would have to be the most important rule to consider when making personal contributions! There are contribution caps on how much money you can pay into your Super fund per year – if you go above this cap, you will be taxed at a higher rate.
The contribution cap for the financial year 2021-2022 is $27,500. This means that you can deposit up to $27,500 in your Super account in the financial year and you will be taxed a flat rate of 15% on it. This amount can come from pre-taxed amounts (like from your employer) or from personal contributions, but the total must not be higher than $27,500 collectively. Any amounts over these contribution caps will likely attract a higher tax rate payable.
There is a way to take advantage of ‘unused’ contribution cap amounts from a previous financial year, resulting in you being able to deposit more than this amount. This can be complicated however, so it’s best seek professional advice and check with an Accountant in checking your eligibility for this. Accountants do have limits on offering financial advice though, however a good Accountant will work alongside Financial Advisors to ensure that you receive the best personal financial advice.
Your age affects your contributions
Those aged 67 or over will need to meet work test (unless you qualify for an exemption) in order to be allowed to make voluntary Super contributions. The work test basically requires a taxpayer to be employed for a minimum of 40 hours over a consecutive period of 30 days, anytime within the financial year.
Residents under the age of 18 are only able to claim a deduction on their non-concessional Super contributions if they’ve made a taxable income as an employee or business owner that financial year.
You cannot claim a tax deduction on salary sacrifice contributions
Salary sacrifice contributions (which are generally concessional contributions) are an arrangement between an employer and employee in which the employer pays an extra amount of Super into the employee’s fund. This amount comes out pre-tax and is charged at 15%. Because this amount is already being charged at the low rate of 15%, you won’t be eligible to claim any tax deduction on it.
How to make a non-concessional Super contribution
Different Super Funds have different ways of making non-concessional Super contributions (or after tax contributions), however the process is generally very easy. When you log into your Super account online, most funds will have a BPay or electronic funds transfer allowing you to transfer the amount you’d like.
If you’re not using an online portal, you can also contact your Super Fund directly and they’ll be able to advise you on how you can make personal after tax contributions.
How to claim Super deductions
To claim a deduction on the amount of Super you’ve contributed, you’ll need to lodge a ‘Notice of Intent’ form. You can find this form on the Australian Taxation Office website here.
This form will ask for personal details as well as the amount of money you’ve personally contributed to your Super and the amount of the personal contributions that you will be claiming as a tax deduction. You must also seek acknowledgment from your personal fund by contacting them directly.
Once this is completed successfully, you will be able to claim a deduction for the amount that you noted on your Notice of Intent. If you are filing your own tax return on myTax and your contributions are personal Super contributions, you can claim this amount on the ‘personal Super contributions’ page.
Warning: it is important to be aware that if you don’t complete your tax return correctly, you may be penalised. So, if you’re not completely confident in how to claim deductions on your Super contributions, it’s always best to check with a Registered Tax Agent or have them file your tax return. They will be able to assess your personal circumstances and advise the best way to claim.
What age can I access my Super?
The age that you are allowed to access your Super depends on the year that you were born. Below are the specifics:
Year of birth Age you can access your super
Before 1 July 1960 55
1 July 1960 — 30 June 1961 56
1 July 1961 — 30 June 1962 57
1 July 1962 — 30 June 1963 58
1 July 1963 — 30 June 1964 59
After 1 July 1964 60
Do I earn interest on my Super?
Potentially. Interest is a form of income that your Superannuation Fund may make, amongst other income from other investment types. Each fund is different and it’s best to check with them in relation to their investment performance and each income stream that they have. Investment earnings are generally available on your Fund’s website.
Is it better to salary sacrifice or claim deductions on my Super?
This depends on where the money is coming from.
When you salary sacrifice you will pay a flat rate of 15% tax on the amount that goes into your Super – as long as it’s under the contribution cap amount. If you receive income as normal and pay your marginal tax rate on it, you will likely be taxed at a higher rate. When you claim this money back in deductions, you’ll only receive the difference between the amount of tax you paid. So, in this case, salary sacrificing is better.
However, if you receive the money by other means (for example, an inheritance) then using it to make a non-concessional Super contributions can be financially beneficial.
What is the maximum amount of money you’re allowed to have in your Super Fund?
In Australia, there is a ‘transfer balance cap’ of $1.7 million. This means that the maximum amount of money that can be transferred into a tax-free pension account is $1.7 million. This does not mean that you cannot accumulate more than this cap; there are just complicated calculations as to how you can access it and at what rate you will pay tax.
Is it a smart idea to put inheritance into my Super?
Putting an inheritance can lead to tax advantages and can certainly leave you with more money in your retirement savings in the long run, however as inheritances can often be large chunks of money, it’s very important to ensure that you don’t go over the super contribution cap for the year.