Superannuation:: How Super Contributions Work

Hello, this is your tax and super specialist, P&C Tax Professionals.

Today, we will be discussing about the different types of superannuation contributions that are in place in Australia.

<Super contributions>

What exactly is a super contribution? In simple terms, a superannuation contribution basically refers to an amount that has been added to your super account so as to increase your super balance. As mentioned in our previous blog post, employers must fully comply with the law and pay at least 10% of their employees’ before-tax salary to their nominated super account. This type of contribution is commonly known as “employer contributions” or “Superannuation Guarantee contributions” and they are all classified as concessional contributions.

<Concessional contributions>

If you make contributions into your super fund before tax has been taken out of your salary (i.e., from your pre-tax salary), these are called “concessional contributions”. Employer superannuation guarantee contributions and salary sacrifice contributions are some of the key examples of a concessional contribution. Since these are super contributions made before tax, you will be taxed at a rate of 15% for the concessional contributions you make during the year which could actually be lower than the tax rate you would normally have to pay on your income tax return. However, it is important to keep in mind that there exists a cap on the total concessional contributions you can make each year which currently stands at $27,500 for the 2022FY. If you go beyond this cap, you would be charged extra tax.

<Non-concessional contributions: Voluntary superannuation contributions>

Voluntary superannuation contributions (also known as “non-concessional”, “after-tax” or “personal contributions”) are contributions you voluntarily make straight from your bank account or from your other personal savings. Therefore, these contributions are in addition to the compulsory super contributions you receive from your employer.

If you would like to claim a tax deduction for your personal super contributions, you would have to provide your super fund with a Notice of intent to claim or vary a deduction for personal contributions form (NAT 71121). Upon submitting the form, you can only claim a tax deduction for the voluntary super contribution you have made once you have obtained an acknowledgement from your super fund.

For those of you who are interested, you can get the form from the ATO link below:

Link to form: https://www.ato.gov.au/forms/notice-of-intent-to-claim-or-vary-a-deduction-for-personal-super-contributions/

The voluntary super contributions you make throughout the 2022FY (1 July 2021 – 30 June 2022) will count towards your non-concessional contributions cap of $110,000.

<Co-contributions>

If you’re classified as a low or middle income earner and you make voluntary superannuation contributions (i.e., after-tax contributions) to your super account, you may also be able to receive a co-contribution from the government up to a maximum of $500. The exact amount of the co-contribution you will receive from the government will mainly depend on your income and how much you contributed personally to your super fund.

I hope today’s discussion has helped you in understanding the superannuation contribution system in Australia. If you have any queries, please contact us through our Official Facebook Page (P&C Tax Professionals) or via our email address at pnctax@naver.com.

Thank you and bye for now!