What is Superannuation Contributions Tax? The Experts Guide

What are Super Contributions?

You may be looking for ways to boost your superannuation and find yourself asking, what exactly are super contributions? Well, look no further because this guide will explain all you need to know about superannuation contributions. These contributions are a way to enhance your super alongside the compulsory contributions your employer makes on your behalf.

These payments are made to a super fund to save for retirement and can be made by an individual, their employer, or the government. This includes after-tax super contributions, which are voluntary payments made into your superannuation that are not part of compulsory contributions. With compulsory super payments sometimes falling short of the amount of super you wish to save, super contributions serve as an important part of retirement planning.

Types of Super Contributions

When thinking about making a personal super contribution, it’s important to understand the different categories involved. Contributions can be made to your super fund from income that has been taxed (after-tax) or hasn’t been taxed (before-tax)—these different types of income form the two main categories of contributions.

Before-Tax Income Contributions (concessional)

Before-tax income contributions are made from an individual’s pre-tax income. They are also known as concessional super contributions. Before-tax contributions are taxed at 15% in the super fund.

Concessional contributions can include:

• Employer contributions, such as salary sacrificing contributions
• Personal contributions you’re entitled to claim as an income tax deduction
• Notional taxed contributions to defined benefit and constitutionally protected funds
• Unfunded defined benefit contributions
• Some amounts allocated from a fund reserve
• Amounts transferred from a foreign super fund where the assessable amount is greater than the vested amount at time of transfer
• For people over 18, contributions by
  • a spouse living separately permanently
  • a parent, child, relative or friend
  • any other third party other than an employer or your spouse.

After-Tax Income Contributions (Non-concessional)

After-tax income contributions are made from an individual’s after-tax income. They are also known as non-concessional super contributions. After-tax contributions are not taxed in the super fund. The non-concessional contributions cap regulates after-tax contributions, exceeding this cap will incur extra taxes.

Non-concessional contributions can include:

• Contributions you or your employer makes from your after-tax income
• Contributions your spouse makes to your super fund
• Personal contributions you have not claimed and been allowed as an income tax deduction
• Excess concessional contributions you have not released from your super fund
• Retirement benefits you withdraw from a super fund and ‘re-contribute’ to super and which you have not claimed or been allowed as an income tax deduction
• Contributions made for you by someone else if you are under 18 and the contributor is not your employer

Tax and Super Contributions

What is superannuation contributions tax?

Concessional super contributions are taxed at 15% in the super fund of an individual, whereas non-concessional super contributions are not taxed in the super fund. Excess concessional contributions are taxed at the individual’s marginal tax rate.

Claiming a Tax Deduction

Individuals can claim a tax deduction for personal deductible superannuation contributions. To claim a tax deduction, individuals must notify their super fund and complete a tax return in order for this claim to be valid.

By claiming a tax deduction, individuals can reduce their taxable income. You may want to claim a tax deduction on your personal contribution if you wish to save money on your taxable income.

The personal super contributions you claim as a deduction will count towards your concessional contributions cap.

Contribution Caps

In Australia, superannuation contribution caps are the limits set on how much money you can contribute to your superannuation fund each financial year. These caps help ensure the tax breaks that come with super are not taken advantage of. The cap increases in increments of $2,500 in line with the statistical measure of average weekly ordinary time earnings (AWOTE). If you have unused cap amounts from previous years, you may be able to carry them forward to increase your contribution caps in later years.

Concessional contributions

• The concessional contributions cap for 2023–24 is $27,500 per year.
• The concessional contributions cap for 2024–25 is $30,000 per year.

Non-concessional contributions

• The non-concessional contributions cap for 2023–24 is $110,000 per year.
• The non-concessional contributions cap for 2024–25 is $120,000 per year.

Exceeding these caps can result in additional tax liabilities, making it important to monitor contributions carefully.

Growing Your Super

Salary Sacrifice

• Personal contributions do not include super contributions made through a salary-sacrifice arrangement. Salary sacrifice is a way to make before-tax contributions to a super fund. Individuals can ask their employer to pay part of their pre-tax income into their super fund.

Government Co-Contributions

• The government may make co-contributions to an individual’s super fund. Co-contributions are made when an individual makes after-tax contributions to their super fund. Co-contributions can help grow an individual’s super balance.

Spouse Contributions

• Individuals can make contributions to their spouse’s super fund. Spouse contributions can help grow a spouse’s super balance. Individuals may be eligible for a tax offset for spouse contributions.

Downsizer Contributions

• Downsizer contributions are made when an individual sells their home and contributes the proceeds to their super fund. Downsizer contributions can help grow an individual’s super balance. 

The Importance of Super Contributions

Super contributions are an important part of retirement planning because they allow individuals to use these contributions to grow their super balance. These contributions can be vital to creating financial security in retirement. Alongside several tax advantages, contributing to your fund will allow you to benefit from compound growth, further maximising your savings. With this in mind, it can sometimes be confusing when it comes to arranging your statements to take advantage of these tax deductions. Shoebox books and tax have the expertise to help organise your financial records so that you can focus more on what you do best.

At Shoebox Books and Tax, we pride ourselves on providing exceptional service to small business owners and individuals alike. We offer tailored bookkeeping and tax services that will simplify your records and ensure ATO compliance.

Find out how you could be saving money on tax and contact us to get support today.