Your super can also help you achieve financial freedom in retirement if you maximise your contributions during the accumulation phase.

Get to know the different ways you can contribute to your super and the tax concession you may be eligible for.

Types of super contributions

There are two types of contributions you can make during the accumulation phase: concessional or non-concessional. The type of contribution determines the tax treatment and tax concessions you may be eligible to claim.

However, in cases where the contributions are eligible for tax offsets and/or deductions, you will not receive the concession unless you provide your tax file number to your super fund.

Concessional contributions

Concessional super contributions refer to the money that is contributed from your pre-tax or gross wage. There are different types of concessional contributions you can make to top up your super.

Superannuation guarantee contributions
Superannuation guarantee or SG refers to the contributions that your employer makes on your behalf. According to the Superannuation Industry (Supervision) Act 1993, employers are required to remit the prescribed SG guarantee to their eligible employees’ chosen super fund.

The super guarantee rate as at financial year 2019-20 is 9.5 per cent of an eligible employee’s ordinary time earnings (OTE). It must also be paid on top of the OTE, which means that employers shouldn’t simply take a portion of their employees’ wage to use as SG contributions.

Personal super contributions
Personal superannuation contributions are contributions paid through your employer from your pre-tax wage. This is also known as salary sacrifice contributions and this may be contributed on top of the SG contributions.

However, this may also count as part of the SG contributions and decrease the actual rate that the employer is required to pay – make sure to discuss the terms of your salary sacrifice so this doesn’t happen.

Spouse contribution
Spouse super contributions refer to voluntary contributions that you may make on behalf of your lower-income spouse. By contributing to your partner’s super, you may be eligible for the spouse contribution tax offset of up to $540 on your tax return.

You and your spouse, whether opposite or same sex, must satisfy the following conditions to be eligible:

• You must meet the definition of married or de facto spouses according to the Australian family law.
• The contributing spouse’s non-concessional contributions and super balance must be left untouched as this strategy may only be used for concessional or pre-tax contributions.

For further details on contribution splitting, read “Tax benefits for voluntary super contributions made on behalf of spouse”.

Non-concessional contributions

Non-concessional super contributions refer to contributions that you make with your after-tax dollars or your take-home pay.

You may directly make non-concessional contributions to your fund, for instance, by transferring money from your personal bank account.

Spouse contribution
Higher-income spouses may also make non-concessional spouse super contributions to their unemployed or lower-income spouse earning a maximum of $37,000 annually. The receiving spouse’s fund will accept non-concessional contributions from the contributing spouse without restrictions until they are 64 years old. However, the receiving spouse must satisfy the work test from age 65 to 69 before their fund accepts any spouse contributions. The provision ends when the receiving spouse turns 70.

Similar to contribution splitting, non-concessional contributions may also grant the contributing spouse a tax offset of up to $540 on their tax return. The offset decreases by $1 for each $1 contributed in excess of $3,000.

Government co-contribution
Government super co-contributions, formally known as the low-income super tax offset (LISTO), is a matching contribution of up to $500 coming from the Australian government. 

You must satisfy the following conditions to be eligible for low-income tax offset:

• Your annual income does not exceed $37,000.
• Your total super balance must be less than the current year’s transfer balance cap (currently at $1.6 million).
• You must not have exceeded your non-concessional contributions cap for the year.

You don’t need to apply to receive a LISTO – the ATO will determine your eligibility and contribute directly when you lodge a tax return or when your super fund submits a contributions information. However, if you have reached your preservation age and have retired or your fund no longer accepts contributions, you may request the ATO to pay LISTO directly to you.

LISTO replaces the low-income super contribution, which was enforced during the 2012-13 to 2016-17 financial years.

Contribution caps

The ATO enforces superannuation contribution caps to ensure that super will stay in line with its objective to secure the retirement benefits of members. These contribution caps apply to the total concessional as well as voluntary non-concessional contributions.

Below are the general superannuation contribution caps as at 1 July 2017:

Both contribution caps apply to all ages. However, these caps may increase depending on your age and total superannuation balance by using the carry-forward or bring-forward arrangements.

What are the carry-forward and bring-forward rules?
Both rules will allow you to exceed contributions for a specified length of time depending on your total superannuation balance. The only difference is that the carry-forward arrangement applies to concessional contributions, while the bring-forward arrangement applies to non-concessional contributions.

The carry-forward rule states that you can access your unused concessional contribution cap for a rolling period of five years if your total balance is less than $500,000. This will begin in the 2019-20 financial year.

The bring-forward rule states that members under 65 years old may contribute up to $300,000 over a three-year period. However, the actual cap depends on the total superannuation balance.

What happens when contributions exceed the cap?
There is an excess concessional contributions charge for members who exceed their annual cap but don’t withdraw the excess amount.

Take note of the following if you exceed your contribution cap for the financial year:

• Excess concessional (before-tax) contributions are included in your tax return and taxed at your marginal tax rate.
• Excess non-concessional contributions may be retained or withdrawn but there are still taxes to pay.
  
  • If you withdraw the excess contributions, the earnings must be included in your tax return and taxed at your marginal tax rate.
  • If you choose to retain the contributions in your fund, the full excess amount is taxed at 47 per cent.

Superannuation contributions tax

Tax also applies to your super, albeit at a generous rate of 15 per cent. Below is a simplified explanation of how the super contributions tax works.

Before-tax super contributions are sent to the fund from your gross income. Since your marginal tax rate hasn’t been applied to the amount, the contribution and any earnings you make from it is taxed within the fund at 15 per cent.

After-tax super contributions come from your net income, which means your marginal tax rate has already been applied to the amount. Since the amount has already been taxed, it will no longer be taxed within the fund. All after-tax contributions will form part of the tax-free component of your super benefits.

Explore Nest Egg to learn more about on how to the claim unpaid super.