There are several different types of super contributions; however, these can be divided into two main categories:
Concessional (pre-tax) contributions
Concessional super contributions are payments put into your super fund from your pre-tax income and are tax deductable for self-employed people. Concessional super contributions are taxed at 15% when they are received by your super fund. They include:
- Compulsory employer contributions (SG), for example, Super Guarantee contributions which generally involves your employer contributing 9.5% of your salary to super for you.
- Voluntary employer contributions, for example, salary sacrifice contributions where you agree with your employer to give up some of your future pre-tax salary in return for extra employer contributions.
- Personal contributions for which you claim an income tax-deduction.
Concessional contributions are capped at $25,000 per financial year. This means the total of your employer and salary sacrificed contributions must not be more than $25,000 each year, see salary sacrifice super for more information.
Advantages and disadvantages of concessional contributions
|1. May reduce tax rates: income tax rates are up to 47% whereas concessional contributions tax is only 15%.||1. Not accessible until a superannuation condition of release has been met, such as meeting the definition of retirement or reaching age 65.|
|2. May help you to increase your retirement saving.||2. Increase the taxable component within super (it will incur tax when paid to certain beneficiaries if you were to pass away).|
|3. Cover cost of insurance premiums you hold within super (those premiums may even be tax deductible).||3. Contributions are taxed at 15% on deposit to the super fund.|
|4. Accrue unused concessional amount each year to make catch-up contributions later|
Non-concessional (after-tax) contributions
Non-concessional super contributions are payments you put into your super from your savings or from income you have already paid tax on. They are not taxed when they are received by your super fund. These are some types of after-tax contributions:
- Personal contributions for which you do not claim a tax deduction
- Eligible contributions made by your spouse into your super account.
Current non-concessional contribution limit is $100,000 per year (or $300,000 within a 3 year period). If you are under age 65 you can bring forward up to 2 years non-concessional cap, allowing you to contribute up to $300,000 at a time, depending on your super balance.
Advantages and Disadvantages of non-concessional contributions
|1. Can be more tax efficient for low-income earners.||1. It is not tax deductible.|
|2. Get larger amounts into your super.||2. Will not reduce your personal assessable income for tax purposes.|
|3. Classified as ‘tax-free’ components within a super account, meaning it will be completely tax-free upon withdrawal in all circumstances.||3. Not accessible until a superannuation condition of release has been met, such as meeting the definition of retirement or reaching age 65.|
|4. All earnings received within a super account are taxed at a maximum of 15%.||4. Exceeding the cap may result in excess contributions tax and excess contributions charge.|
|5. Changes to superannuation rules in the future may make accessing superannuation harder or more limited.|
You can see which type of super contributions will give your super bigger boost by using this MoneySmart “Super contributions optimiser” calculators.
You can find more information in our “Superannuation” fact sheet.