Superannuation contribution basics

Do you tend not to think too much about superannuation because you are still young? Keeping an eye on your super from the start of your career is imperative to setting up for your retirement, even if that is many, many years away. There may even be a bonus for you in an available tax deduction if you contribute additional amounts to your super.

When you are an employee, superannuation is straight forward. Your employer pays a portion of your salary or wages to a super fund for you. Legally, they must pay a minimum of 9.5%. There is more to superannuation however and the following article explores the basics.

Q: What are concessional superannuation contributions?

A: Concessional contributions are paid into your super fund from money that has not been taxed. That is before tax contributions. The types of concessional contributions are compulsory employer contributions (a minimum of 9.5%), additional amounts that you may decide to salary sacrifice from your wages and any personal super contributions that you make and claim as a tax deduction. The contributions paid into your super fund will be taxed at a rate of only 15% in the fund. This rate will be much lower than your own personal tax rate.

Q: What are non-concessional superannuation contributions?

A: Non-Concessional contributions are those paid into your super fund from after tax monies. These contributions will not be taxed in your super fund because you have already paid tax on the money. Common forms of non-concessional contributions include contributions your employer makes on your behalf from your after-tax income and any personal super contributions not claimed as a tax deduction.

Q: Can I contribute as much as I want to my superannuation account?

A: Unfortunately, there are caps on the amount you can contribute to your superannuation each financial year. The current cap on concessional contributions is $25,000 per tax year while the cap on non-concessional contribution is $100,000. Penalty tax will apply if you exceed your caps.

Q: What do I need to do if I want to claim a tax deduction on my eligible superannuation contribution?

A: Download and complete a Notice of Intent to Claim or vary a deduction for personal super contributions from the ATO website and lodge it with your super fund. Alternatively, complete an electronic form on your fund’s website, if available. Please note, if you have made a super contribution during the 2020 financial year, you must lodge the form to your fund by the earlier of the day you lodge your 2020 income tax return or the end of the 2021 financial year. If the timing is not right, your deduction could be denied by the ATO.

Q: Can I salary sacrifice superannuation?

A: Yes, and there may be an incentive provided by your employer, where they will then increase their percentage of contribution made on your behalf. Please see our article on salary sacrificing/salary packaging here. (Link to the article)

There are many issues to consider when deciding on your superannuation strategy and we can assist you to implement a superannuation strategy in line with your current circumstances. We can also advise on the tax implications of your contribution strategy.