Superannuation contributions explained

Understanding superannuation contributions is crucial for optimising your retirement savings. And it's not just about relying on your employer's mandatory contributions. 

There's actually a range of ways you can contribute to your super, many offering beneficial tax implications. This guide aims to demystify both concessional and non-concessional contributions, helping you grasp the different rules, tax benefits and strategies available. 

So let’s dig in.

Concessional contributions are a cornerstone of the superannuation system, offering individuals a tax-efficient way to save for retirement. These contributions are taxed at only 15%, which is typically lower than the personal income tax rate.

Here are the different types of concessional contributions:

• Employer contributions. This is the portion of your salary that your employer is required to deposit into your super fund. It goes in pre-tax, and is taxed at 15% once it hits your fund.
• Salary sacrifice contributions. This involves voluntarily contributing a part of your pre-tax salary to your super fund. It also goes in pre-tax and is taxed at 15% once it hits your fund.
• Personal concessional contributions. These are personal contributions you make with your after-tax income and then claim as a tax deduction. This effectively converts them into concessional contributions and results in these contributions being taxed at a lower rate of 15%.

Besides the fact that you only pay 15% tax on concessional contributions in the first place, another significant benefit is that they will lower your overall taxable income, potentially placing you in a lower tax bracket.

However, it's important to be aware that the annual cap on concessional contributions is $27,500. Contributions that exceed this cap are taxed at a higher rate, so make sure you keep an eye on it.

Carry forward rule for concessional contributions

The carry-forward rule in superannuation is a flexible feature that lets you 'catch up' on concessional contributions in years when you can contribute more.

The carry-forward rule allows you to use up to five years' worth of unused concessional contribution caps. For instance, if over the past five years you’ve contributed $10,000 less than the cap each year, you could potentially contribute an extra $50,000 this year, on top of the current year's cap. 

This is particularly useful for those who may have had lower income in previous years and now have the capacity to save more towards their retirement. Remember, your Total Super Balance must be under $500,000 to be eligible.

Special Tax Considerations on Concessional Contributions

Special tax considerations come into play for super contributors at both ends of the income scale. These include.

• Low-income super tax offset (LISTO). If you are a low-income earner, the LISTO essentially refunds the tax paid on eligible concessional contributions up to a maximum of $500, providing additional support to boost your super savings.
• Division 293 tax. For high-income earners, an additional 15% tax, known as Division 293 tax, is levied on a portion of your concessional contributions if your combined income and super contributions exceed $250,000.

Whether benefiting from the LISTO as a low-income earner or managing the Division 293 tax as a high-income individual, understanding these aspects ensures that you leverage superannuation contributions to your best advantage.

Non-concessional contributions are an effective way to increase your super balance using after-tax funds. While they lack the upfront income tax benefits of concessional contributions, the earnings on these contributions as they grow within the fund (ie, the accumulation phase) are generally taxed at a lower rate than other income. Here are several types of non-concessional contributions:

• Personal non-concessional contributions. If you max out your concessional contributions, but still want to add to your super, you can make personal after-tax contributions to take advantage of the tax benefits during the accumulation phase. For more information on taxes during each phase of your super’s life, check out our article on super taxes.
• Excess concessional contributions. If your total concessional contributions, including employer and salary sacrificed amounts, go over the cap, they're treated as non-concessional contributions at tax time. This essentially means you'll owe additional tax on these contributions, as they were initially taxed at the concessional rate of 15% when contributed. You may also have to pay an excess concessional contribution charge for the deferred payment of tax.

Just be mindful that the annual non-concessional cap is set at $110,000, after which you may incur additional contribution taxes. Additionally, those with balances over $1.9 million have a cap of effectively $0, meaning you’d actually be penalised for making any after-tax contributions.

Bring-forward rule for non-concessional contributions

The bring-forward rule in superannuation allows individuals 75 years old and younger to make larger non-concessional (after-tax) contributions in a single year by ‘bringing forward’ your non-concessional contribution caps from the next two years. With the current annual cap set at $110,000, this means you could potentially contribute up to $330,000 in one year.

Your eligibility for this rule is based on your total super balance at the end of the previous financial year:

• Less than $1.68 million. You can contribute up to $330,000 in one year, which utilises your non-concessional cap for the current and next two years.

• $1.68 million to less than $1.79 million. Your cap is limited to $220,000, covering the current and next year's cap.

• $1.79 million to less than $1.9 million. The bring-forward rule is not available, but you can still contribute up to the standard annual cap of $110,000.

• $1.9 million or more. The bring forward rule is not available since your annual cap is already $0.

The bring-forward rule can be particularly useful if you receive a windfall, inheritance or have other substantial amounts you wish to contribute to your super

There are also some unique ways to contribute to your super, each offering advantages to specific groups of people with specific use cases. Let's have a look at a few of these.

Downsizing Contributions

Downsizing contributions are a great way for those over 55 to boost their super. If you're selling your home, you can contribute up to $300,000 of the proceeds to your super fund. This not only helps increase your retirement savings but also offers a way to manage the funds from your property sale efficiently.

First Home Super Saver Scheme (FHSSS)

The FHSSS is an initiative to help first-time homebuyers. By making voluntary contributions to your super, you can later withdraw these funds to use as a deposit for your first home. This scheme is an innovative way to use your super savings for immediate housing needs while continuing to plan for the future.

Super Co-Contribution Scheme. 

This scheme is particularly beneficial for lower to middle-income earners. When they make personal contributions to their super, the government matches these contributions, up to a certain limit, effectively doubling the impact of their savings in some cases.

Spouse Contributions: 

These contributions involve adding money to your spouse's super fund. It's a valuable strategy for couples looking to balance their super savings, particularly if one partner has taken time out of the workforce or earns significantly less.

The Super Guarantee Scheme is an essential part of Australia's superannuation system, mandating employers to contribute to their employees' super funds. Let’s have a look at your employer’s role in building your superannuation. 

Super Guarantee Rate

The current SG rate is set at 11% of an employee's earnings. This rate is scheduled to increase, rising to 11.5% by July 1, 2024, and eventually reaching 12% by July 1, 2025. These progressive increases are part of a long-term plan to enhance the retirement readiness of Australian workers.

Payment Frequency

As of now, employers typically make these super contributions on a quarterly basis. This regular contribution schedule helps in accumulating retirement savings over time, although it's crucial for employees to keep track of these periodic deposits.

Upcoming Changes

A notable change is expected from July 1, 2026, when employers will start paying super contributions simultaneously with salary and wages. This shift is aimed at ensuring more timely contributions to super funds and improving overall compliance with the SG obligations.

For employees, staying informed about these contributions and upcoming changes is key to understanding and planning their retirement savings effectively. You can find more detailed information on the Australian Taxation Office website.

^ The figures and information provided in this article are accurate as of the time of publication. We are committed to keeping our content updated and will make every effort to reflect any new changes as soon as they occur. However, superannuation rules and figures can change, and we recommend consulting with a financial advisor or the Australian Taxation Office for the most current information.