Types of Contributions
Just send money to the super fund and you are good to go, right? Wrong! Money in your super account gets ‘tagged’ in a way to indicate how that dollar should be taxed later, whether it can be used as a deduction now, and how it can be pulled out of the account (and paid to you) later.
There are 3 key types of contributions:
- Concessional Contributions
- Non-Concessional Contributions
- Government Co-Contributions
Concessional contributions and contribution caps
Contributions to your Super fund that are made ‘before tax’ are known as concessional contributions. ‘Before tax’ means the payments come from money (income for example) that has not been taxed yet. They are called ‘concessional’ because they get a concessional or lesser tax rate. In your Super fund, they are taxed at a rate of 15% if your income is less than $250,000.
The most common kind of concessional contribution is the payments your employer makes on your behalf. From 1 July 2022 your employer has to contribute 10% on top of your salary/wages to your fund of choice. So, if you earned $1,000, they pay $100 to your super account. These are technically Superannuation Guarantee (SG) contributions.
There are other examples of these which you can read about here.
The other very important one is contributions you make yourself to your own Super fund. Of course, check with your adviser, but this might be how you contribute if you are a sole trader, self-employed or just have some spare money you’re looking to save for the future.
Naturally, there are caps and forms and all that fun stuff to consider.
The concessional contribution cap for each year is $25,000 from July 1, 2017 to June 30, 2021, and is $27,500 per annum from July 1, 2021. This means from now on, you can dump up to $27,500 each year into your Super fund from before-tax income, and you might be able to claim a deduction for those contributions in your tax return!
If both you and your employer make concessional contributions then you need to add them together and check you are still under the cap ($27,500). The SG contributions your employer has to make for you count towards this cap.
HOT TIP: Read more about making contributions yourself here.
Sometimes the caps can roll forward though, so if you haven't used all of your cap in previous years, your cap for this year may be higher. Chat to your adviser or super fund for more info.
If you do go over the cap, the ATO will be sure to let you know!
Non-concessional contributions and contribution caps
Now that we understand these, it makes sense that non-concessional contributions are those made from your after-tax income and they are not taxed again in your super fund, which is handy, since the income you are using has likely already been taxed.
Some examples: (more info here)
- Contributions you or your employer make from after-tax income
- Personal contributions you make, but don’t claim as a deduction
- Contributions made to your fund by someone else, like a partner
You know the drill now - there are caps on these too! The ATO has the details here. The non-concessional contributions cap is now $110,000 per annum (since July 1, 2021). If you go above this then you may have to pay more tax if you contribute more.
Please note your cap might be different and there are a lot of rules around this. A blog can’t give you all the info so please do further research and ask your fund or adviser about your personal circumstances.
Government co-contributions
Who doesn’t love a cheeky pay out from the Government?
When you are eligible (see criteria below), the Government may make co-contributions to your account to assist you in increasing your super balance, and therefore retirement savings. If you're a low or middle income earner who contributes to your personal super fund after taxes (i.e. you do not claim your own contribution as a tax deduction), the government may match your payments (called a co-contribution) up to a maximum of $500 - so good.
The Super co-contribution does not require an application - it happens automatically. When you lodge your tax return (or we lodge it for you!) the ATO will check if you're eligible and will then pay the appropriate co-contribution amount to your super account instantly - assuming the super fund has your tax file number (TFN).
Eligibility for the super co-contribution
After you've filed your tax return, ATO will assess if you meet the requirements for the government Super co-contribution. To be considered, you must meet the following requirements:
- during the financial year, you made one or more qualified personal Super contributions to your Super account
- passing both income tests (income threshold and 10 percent eligible income tests)
- be under the age of 71 at the end of the financial year
- not be in possession of a temporary visa at any point during the financial year (unless you are a New Zealand citizen or it was a prescribed visa)
- submit your tax return for the relevant financial year (we’re in big support of this bit!!)
- have a total Superannuation sum at the end of the previous financial year that was less than the general transfer balance cap
- you must not have exceeded your non-concessional contribution cap
Not so fun fact: Any personal contributions that have been authorized as a tax deduction are not eligible for a Super co-contribution.
Super co-contributions income threshold
You will get the maximum co-contribution of $500 if your total income is equal to or less than the lower threshold and you make personal contributions of $1,000 to your Super account. This can get tricky but there is more info here, and remember if it applies to you it will happen automatically!
If your income is equal to or greater than the higher level, you will not be eligible for a co-contribution. If your total income falls between the two limits/threshold, your maximum entitlement will gradually decrease as your income grows. Only got a little bit to contribute? That is fine! ATO will pay the minimal amount of $20 if your co-contribution is less than $20.
What do we want you to take away from this blog?
Just make sure you (and/or) your employer are contributing to Super, if that is appropriate for you, and if you are making contributions, consider what type they are and whether you can (and should) claim them as a deduction in your tax return.
You might also like our Superannuation Video covering everything you need to know, in heaps of depth.
