There are several ways you can contribute to your super, depending on your personal circumstances. The tax you pay on super contributions varies. Explore these five ways to grow your super and reap their tax benefits.
1. Salary sacrifice
You can ask your employer to pay some of your salary into your super. This salary sacrifice is usually on top of the superannuation guarantee minimum percentage payments that your employer is obliged by law to contribute. These payments taken from pre-tax income are called concessional contributions.
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 portion of your gross pay is then taxed at 15% in the super fund instead of your marginal tax rate, unless you’ve exceeded the concessional contributions cap and/or earn more than $250,000 then you may be subject to additional tax/es.
Keep in mind that unlike the employee super guarantee, salary sacrificing isn’t something employers are obliged to offer. You’ll need to speak with your employer to check if it’s an option available to you.
2. Government co-contribution
Low to middle income earners may be eligible to receive a government co-contribution to their super. How much you earn and contribute to your super determines whether you’re entitled and, if so, how much. The maximum co-contribution is $500 each year you’re 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 also boost your super by adding your own contributions to your super fund from your after-tax income (that is, from your take-home pay). These are called non-concessional contributions, and will count towards your non-concessional contributions cap unless you’ve claimed a tax deduction for them. You don’t pay any contributions tax on non-concessional contributions.
If you claim a tax deduction for personal super contributions, they become part of your concessional contributions.
You may be able to claim a tax deduction on any personal super contributions you make until you turn 75.
You can check if you’re eligible to claim a deduction for personal super contributions on the ATO website.
Keep in mind if you claim a deduction for your personal contributions, you won’t be eligible for a super co-contribution.
Selling your home? Individuals 55 years and older may be able to contribute up to $300,000 from the sale of their home into their super. These are called downsizer contributions. Check the ATO website for eligibility criteria.
What’s the tax concession?
Claiming your personal super contributions as a tax deduction, or making a downsizer contribution, may reduce your taxable income. This may reduce the total amount of tax you pay. The amount will vary based on your own personal circumstances.
4. Spouse contributions
The ATO defines a spouse as another person (of any sex) who:
- You’re in a relationship with, registered under a state or territory law; or
- Although not legally married to you, lives 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 have 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 spouse contribution tax offset if your spouse was under 75 at the time the contribution was made.
The maximum spouse contribution tax offset is $540. Learn more about eligibility on the ATO website.
5. Super contribution splitting
Some super funds let you transfer some of your before-tax contributions, usually from the previous financial year, to your partner’s super 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?
By splitting super contributions between you and your spouse, you may be able to provide superannuation and pay for insurance premiums for your non-working or low-income spouse. 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 account won’t count towards their cap. This is because it was already counted against your cap when you made the original contribution. Learn more about contributions splitting.
Final things to remember about super contribution tax
Don’t get caught above the cap
Caps apply to the contributions you make to your super.
Once you exceed these caps, the tax advantages won’t apply – your super contributions could be taxed at up to 94%.
You can find out more about contribution caps on the ATO website.
Get professional advice
Tax can be complex, so you should consider discussing your personal situation with your accountant, taxation or financial adviser.
For more information on superannuation, check out our Super FAQs.
