Additional Superannuation Contributions
Each quarter your employer contributes money to your super fund. They are required to contribute at least 10% of your ordinary income – this is called superannuation guarantee. Amounts paid by your employer for superannuation guarantee do not impact your tax return.
But what about additional superannuation contributions? What is salary sacrifice super? Why does my accountant ask me if I’ve made personal super contributions? Can I put extra money into my super fund?
In most circumstances your superfund can receive up to $27,500 each year in ‘concessional’ superannuation contributions. Concessional super contributions are made up of the amounts that your employer contributes (super guarantee), salary sacrifice super, and personal super contributions. Concessional contributions are taxed at 15% in your super fund.
Salary Sacrifice Super Contributions, or Reportable Employer Super Contributions, are where you get your employer to deduct funds from your pay pre-tax and put them in your super fund. As it is taken out pre-tax, it reduces your taxable income, and your employer withholds less tax.
Personal Superannuation Contributions are where you contribute to your superfund from your personal savings or ‘post-tax’ income. If you contribute to your superfund and complete the required notice of intent to claim, you can claim these contributions as an additional tax deduction for the year that you make the contribution. Personal superannuation contributions can particularly come in handy for tax planning around capital gains tax events. Keep in mind though - timing is important! So if you have a capital gains tax event coming up, like selling a rental property or shares, getting tax advice before everything goes through can be very beneficial. Often if you wait until doing the next tax return, it is too late to harness opportunities like additional superannuation contributions.
Carry forward Concessional contributions occur where in previous years you have not maxed out the amount that can be paid to super, and so you can do additional contributions in this year. If you wish to know the maximum amount you might be able to contribute, we may be able to assist. Please contact us directly for more information.
What are the tax incentives for additional superannuation contributions? Concessional contributions are taxed at 15% in your super fund. This means that a contribution of $10,000 will actually be a contribution of $8,500, when considering the tax paid by the super fund. Tax rates for individuals are 0% up until $18,200, 19% from $18,201 - $45,000, 32.5% from $45,001 - $120,000, 37.5% from $120,001 - $180,000, and 45% from $180,000+, and then up to 2% extra for the Medicare levy. As such, additional super contributions could be a net tax saving of up to 32%, when you compare the tax paid by the super fund on the contribution vs the tax that you pay personally on the same amount.
Why doesn't everyone do superannuation contributions? Given the potential savings that you can see above, you might think its a no brainer and ask why everyone isn't doing them.
Firstly, when you do a super contribution, you can't just take it out again in a month or a year. Once you have put money in, you can only remove it if you fulfil release requirements. While there are possibilities for first home buyer super scheme, extreme hardship, and/or other difficult circumstances, the most common requirement is meeting the age release requirements. Putting money away that is not accessible can be unattractive when you are not close to the required age for release.
Secondly, it might not be practical financially. You might be using your full income for day-to-day expenses, are prioritising paying off your house, or building up personal savings for things in the future. In order to pay it, there is an element of immediate sacrifice - whether lower weekly income due to salary sacrifice or a lump sum payment of your cash. It is both a personal decision and a financial decision. This is also why we can tell you what the facts are, we can also provide tax advice, and tell you exactly what the tax savings and/or benefits are, but whether it is right for you is not a question we can answer.
If I want to go ahead, when should I do something about it? Superannuation contributions are considered on the basis of when they are paid, and in particular the financial/tax year in which they were paid. If you want to do a personal super contribution and claim it in your 2022 tax return, for example, your contribution has to be received by your super fund by 30 June 2022. You can not make a payment in September 2022 when you are doing your tax return, and then claim it for 2022, as its in the 2023 tax year.
What are the release requirements for super? This is a great question to consider in light of additional super contributions. The main conditions are retiring at or after reaching preservation age (more information here), but also include severe financial hardship, compassionate grounds, terminal illness, temporary or permanent incapacity, or departing Australia for certain Visa holders.
We've put together a flyer with some more information you may want to consider. The flyer also looks at salary sacrifice super vs personal super contributions, as well as some cautionary considerations to keep in mind. Click this link to download in pdf format. Please contact us for personal tax advice to see if it is right for you.
* We note that this is general information and should not be considered financial or personal advice. You should consider seeking independent financial advice to see how this relates to your circumstances. For personalised tax advice please contact us.