One of the best wealth creation strategies in Australia is making super contributions. There are various ways to contribute to super and these can have different tax and other benefits as well as penalties in some cases if they’re done incorrectly. In this guide we break down the main types of contributions, the benefits and the eligibility so you can determine whether they’re right for you.
Super Guarantee (employer contributions)
The compulsory rate of super contributions that employers need to make to their employees super funds is known as the Super Guarantee. Currently, the standard super guarantee rate is 11.00% of your pre-tax salary and is slated to increase as follows:
|Financial Year||Super Guarantee|
|1 July 2023 – 30 June 2024||11.0%|
|1 July 2024 – 30 June 2025||11.5%|
|1 July 2024 – 30 June 2025||12.0%|
Salary sacrificing Is contributing an additional amount (above your super guarantee) of your pre-tax salary into your super fund.
This is generally a tax effective strategy, as long as your marginal tax rate is higher than the 15% contributions tax.
For example, if you earn $60,000 per year (34.5% tax bracket) and you organise with your employer to salary sacrifice $1,000 into super, you will then save $345 income tax and pay $150 contributions tax- thus reducing your total tax exposure by $195.
You must make sure that you do not make more than $27,500 per year in concessional contributions. This includes your super guarantee, as any amount above $27,500 gets taxed at the highest marginal tax rate (47.5%). Read more about whether salary sacrificing is worth it.
The government co-contribution is available to anyone earning less than $52,697 per year (before tax) with the full benefit of 50c for every $1 contributed (up to a maximum of $500) being available to those earning under $37,697 per year.
E.g. if you earn $35,000 for the financial year and you make an after tax contribution into your super during the same financial year of $1,000 then after you’ve completed your tax return the government will contribute $500 into your super fund. If you contributed $500 the co-contribution would be $250.
If you’d like further info, check out our in depth analysis of the government co-contribution.
To see if you’re eligible for a government co-contribution please use the ATO’s Super Co-contribution Calculator
If your spouse earns below $40,000 per year you can make an after tax contribution to their super fund and receive an 18% tax rebate on contributed amounts up to a contribution limit of $3,000.
For example: a $1,000 contribution would provide a $180 tax rebate and the maximum $3,000 contribution provides a $540 tax. You can contribute more than $3,000 but you won’t receive any more than $540 for the contribution.
Contribution splitting involves reallocating a portion of one partner’s superannuation contributions to the other partner’s super account.
The contributing partner can choose to split up to 85% of their concessional (before-tax) contributions, including employer contributions and salary sacrifice amounts with their spouse. The receiving spouse must be under their preservation age or between their preservation age and 65 and not retired. The contribution is transferred as a rollover and is subject to tax regulations and contribution caps. Potential benefits of contribution splitting can include:
Tax-effective funding of life insurance.
Earlier access to superannuation benefits.
Earlier access to tax concessions.
Managing transfer balance cap.
Managing total super balance.
Are Super Contributions right for you?
There are various options available for boosting your superannuation with additional contributions.
Understanding the nuances of the different contributions and which best suits your personal circumstances is most important. If you’re unsure whether you should make additional contributions, which type best suits and what the implications are then it’s best to get advice.