Your Guide to Super Contributions

Saving and investing for your future is one of the wisest things you can do, whether you are just starting out in your career, cementing financial foundations, or approaching retirement.

To live the lifestyle you want in retirement, you may need to make additional contributions to your super, over and above the mandatory employer-paid 9.5% superannuation guarantee. Despite the fact that many Australians need to make additional contributions to secure sufficient retirement savings, only 1 in 8 employed super fund members make any additional contributions to their super.

 

What are super contributions?

Any money that is deposited into your super account (usually by you or your employer) is a super contribution. This can be an ongoing payment or a one-off.

There are TWO types of super contributions, concessional contributions and non-concessional contributions. These two types of contributions are taxed differently and there are different contribution caps for each type. We’ll unpack these in more depth below, but for now here is a brief overview:

Concessional Contributions
(pre-tax)
Non-concessional contributions
(after – tax)
These are contributions into your super account on which you are concessionally taxed, meaning you are not taxed at your marginal income tax rate. Superannuation Guarantee (SG) contributions from your employer and salary sacrifice are concessional contributions. These also include any personal payments you make into your super which you choose to claim as a tax-deduction. These are also known as before-tax contributions. Non-concessional contributions, which is also known as an after-tax contribution, because tax has already been paid on this money and includes any personal payments you have not claimed as a tax deduction. These are payments which have not had any concessional tax treatment. You can also make non-concessional contributions when you have not reached the concessional cap.

 

What are the benefits of additional contributions?

There are both long-term and short-term benefits to making additional contributions to your super. Below are five key benefits of making contributions to your super:

1. Compound interest

One of the long-term benefits is compound interest, which Albert Einstein reputedly called the “eighth wonder of the world”. Compound interest allows your savings grow exponentially over time as interest earns interest on itself!

A simple compound interest calculation (using the Money Smart Compound Interest Calculator) shows that contributing an extra $500 a year (or $9.60 a week) could see an almost $100,000 boost to your retirement savings. When it comes to super, small contributions made early and regularly can have a huge impact!

Compound interest

2. Tax deductions on after-tax contributions

When you make after-tax super contributions (non-concessional contributions) in a particular financial year, these can be claimed as a tax deduction.  This reduces your taxable income for that financial year.

Claiming a deduction on after-tax contributions is handy if your employer doesn’t offer you the option to salary sacrifice. This tax benefit is also useful if you receive income that you’d otherwise pay tax on at your full marginal tax rate.

To make an after-tax (non-concessional) super contribution and claim a deduction on it, you’ll need to make a payment to your super and then lodge a ‘Notice of intent to claim or vary a deduction for personal super contributions’ form through Christian Super. The Notice of Intent form can be completed at any time as long as it is before you submit your tax return.  The non-concessional contributions need to be paid before 30 June in order to be applied for that financial year. More details on this process can be found below in the section called How to claim a tax deduction.

 3. Co-contributions from the government

For members who are low-to-middle-income earners, making after-tax contributions (which you haven’t claimed a tax deduction on) to your super could make you eligible to receive a government co-contribution.

If you have an income of less than $54,837 in the 2020/21 financial year, your super account could receive up to $500 in the form of a co-contribution from the government. Read more about the government co-contribution here.

You do not need to apply for the government co-contribution, however you will need to provide your tax file number to Christian Super. Once you’ve lodged your tax return, the Australian Taxation Office (ATO) will use the info provided in your tax return and the contribution i received from Christian Super to confirm your eligibility. Any co-contribution is deposited into your super account.

4. Low income super tax offset

If you earn $37,000 or less a year, and you (or your employer) make concessional super contributions, the government may refund the tax you paid on those contributions back into your super account, up to a maximum of $500 per year.

If you’re eligible for the low income super tax offset, it will be automatically calculated by the ATO and deposited in your super account after you lodge your tax return.

5. Spouse contributions tax offset

If your spouse is a low-to-middle-income earner or is not working, you might be eligible for a tax offset if you make after-tax contributions into their super. Eligibility rules apply, and the receiving spouse must be under the age of 67, or if they’re aged 67 to 74, they must meet the work test or work test exemption requirements.

Generally, if you do make after-tax contributions to your spouse’s super fund, you can claim an 18% tax offset on up to $3,000 when completing your tax return. Your spouse’s income must be $37,000 or less for you to qualify for the full tax offset and less than $40,000 for you to receive a partial tax offset.

Contributing into your spouse’s super fund may be a good idea if you can’t make further after-tax contributions into your own super (for example, if you’ve reached your own contributions cap). Super contributions are usually taxed at a lower rate than what your income is, making this a tax benefit whilst also boosting your spouse’s super.

It’s important to note that making additional contributions doesn’t benefit everyone, and not everyone is eligible to take advantage of some of the benefits of making additional contributions. Before we consider eligibility, let’s first look at the different types of additional contributions that you can make.

Continue reading about Concessional Contributions >

This is part of our 3-part series on contributions. Click on the links to read more:

  1. Your Guide to Super Contributions
  2. Concessional Contributions Explained
  3. Non-Concessional Contributions Explained