There’s a number of contributions you might be able to consider, depending on your personal circumstances, and they might also help you to manage your tax.
You’ll generally pay just 15% on superannuation contributions made from your pre-tax salary, including employer Super Guarantee and salary sacrifice contributions.
Earnings you make on your money within super are taxed at a maximum of 15%, or if you’re receiving a pension1 through your super, tax-free – the same investment earnings outside super may be taxed at your marginal tax rate.
Don’t get caught above the cap
When you make contributions into your super, make sure you don’t go above the annual caps.
Once you exceed these caps, the tax advantages with super fall away and your contributions will be taxed at the highest marginal tax rate, plus the Medicare levy, plus any other applicable levies.
You can find out more information at the Australian Taxation Office (ATO) website.
Tax can be complex, so you should consider discussing your personal situation with your accountant or a taxation adviser.
If you’re a higher income earner, boosting your super might possibly help you reduce your marginal tax rate.
If you’re taking a career break or earning a lower wage, it could be worth investigating opportunities to help you to contribute to your super.
Here are some contributions to consider that could help you to manage your tax:
1. Salary sacrifice
You can ask your employer to redirect some of your salary into your super. This salary sacrifice is usually in addition to your Superannuation Guarantee minimum percentage payments that your employer is obliged by law to contribute.
It's important to check how your employer treats salary sacrifice contributions before putting this strategy in place.
What’s the tax concession?
Your salary is sacrificed straight into your super, so it’s taken from your gross (before-tax) pay. This means it’ll be taxed at 15%, unless you’ve exceeded the concessional super contributions cap.
From 1 July 2017, if you earn more than $250,000 a year you may be subject to an additional 15% tax.
There is a limit on how much you can contribute to superannuation and the most up-to-date information can be found on the Australian Taxation Office (ATO) website.
Unlike the employee superannuation guarantee, salary sacrificing isn’t something employers are obliged to offer. You would need to speak with your employer to check if it is an option available to you.
2. Government co-contribution
How much you earn and contribute to your super determines whether you’re entitled to receive a government co-contribution, and if so how much. The maximum co-contribution is $500 each year you are eligible.
What’s the tax concession?
A Government co-contribution isn’t included as part of your taxable income, so you don’t pay any tax on it when it’s paid into your super.
3. Personal super contributions
You can boost your super by adding your own contributions to your super fund or into your spouse’s super fund.
Personal super contributions are the amounts you contribute to your super fund from your after-tax income (that is, from your take-home pay).
- are in addition to any compulsory super contributions your employer makes on your behalf
- do not include super contributions made through a salary-sacrifice arrangement
Personal contributions are non-concessional (after-tax) contributions and will count towards your non-concessional contributions cap unless you have claimed a tax deduction for them.
If you claim a tax deduction for personal contributions, they become part of your concessional contributions. The concessional contributions cap is $25,000 for 2018-2019. Note that spouse contributions aren't eligible for a tax deduction but your spouse may be eligible for a spouse contribution tax offset of up to $540 if you are a low income earner.
If, for example, your employer pays Super Guarantee of $10,000, and you don’t salary sacrifice, you could potentially make a personal after-tax contribution of up to $15,000 and may be able to claim a tax deduction for that amount. You must be sure not to go over the contributions cap.
If you’re an employee you generally can’t claim a tax deduction for any personal super contributions made before 1 July 2017, although you may be eligible for a super co-contribution.
From 1 July 2017, most people, regardless of their employment arrangement, are able to claim a full tax deduction for any personal super contributions they make to their super until they turn 75. Individuals who are aged between 65 and 75 will need to meet the work test to be eligible to contribute to super and claim the deduction.
However, from 1 July 2019, a work test exemption may apply if you have a total superannuation balance of less than $300,000 and you met the work test in the previous financial year.
To claim a tax deduction for personal contributions, you must complete and lodge a notice of intent with your super fund and have this notice acknowledged (in writing) by your fund before claiming the deduction in your tax return. See the ATO website for further eligibility rules for claiming a tax deduction for personal super contributions.
If you claim a deduction for your personal contributions, you are not eligible for a super co-contribution.
Adding to super if you’re not working
If you’re under 65, you can make personal after-tax contributions to your super fund if you’re not working.
If you’re 65 years of age or over, you can only make personal after-tax super contributions if you:
- aren’t yet 75 years of age or older and
- have been employed for at least 40 hours over 30 consecutive days during the financial year
What’s the tax concession?
Claiming your contributions as a tax deduction may reduce your taxable income and consequently, the total amount of any tax you pay.
4. Spouse contributions
The ATO defines spouse as another person (of any sex) who:
- you were in a relationship with that was registered under a state or territory law; or
- although not legally married to you, lived with you on a genuine domestic basis in a relationship as a couple
What’s the tax concession?
If you’re in a relationship and made contributions under the threshold to your spouse’s super fund or retirement savings account (RSA) during the financial year, you may be entitled to a tax offset where the receiving spouse is under the age of 70 at the time the contribution is made. The maximum spouse contribution tax offset is $540.
5. Super contribution splitting
Some super funds allow you to transfer some of your before-tax contributions, usually from the previous financial year, to your partner’s super account. Examples of before-tax contributions include employer contributions and personal contributions for which you have claimed a tax deduction. These are otherwise known as concessional contributions.
How does it work?
You can direct concessional contributions already made in the previous financial year (which counted toward your contributions cap) to your spouse’s superannuation account. The maximum you can send to your spouse’s account is the lesser of:
- 85% of your concessional contributions for the financial year or
- the concessional contributions cap for that financial year
What's the tax concession?
This can be a way to top-up your partner’s super so they don’t fall behind.
The amount you send to your spouse’s super will not count towards their cap, since it was already counted against your cap when you made the original contribution.
By equalising contributions between spouses you may also be able to withdraw more from the tax-free pension phase if your combined super balances are likely to be more than $1.6 million when you retire.
1 Investment earnings in a ‘transition to retirement’ income stream will only be tax-free once you reach age 65 or notify the trustee that you have met the terminal medical condition, permanent incapacity or retirement condition of release.