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Superannuation Tax: How is your superannuation taxed?

When you receive a wage from your employer they pay a percentage of those earnings into your superannuation fund. For those who can afford it, extra contributions are an excellent way to increase retirement savings and reduce taxes. And if you're on a low income, then the government may make extra superannuation (super) contributions on your behalf.

It's important to ensure that the correct amount of money is being paid into your super fund. As of 1 July 2022, your employer should be paying into your super fund regardless of how much you earn.

Taxing Your Superannuation

11.5% (for the 2023-2024 financial year) of your ordinary time earnings should be paid into your super fund by your employer, this is known as the super guarantee. Ordinary time earnings are your wages for your normal working hours. It is important to note that this rate will increase and will eventually reach 12%. 

You can check to ensure your super is being paid properly by checking your pay slip, logging in to your myGov account or calling or checking your super fund online. These payments must be made quarterly, but some employers choose to make the payments more frequently. If your employer is not making the payments, report it to the ATO. If your employer is paying the incorrect amount, speak to them directly. 

There is a limit to how much can be paid into your fund each financial year and if you exceed the contribution cap, you will need to pay extra tax. Every super fund has a contribution cap and if you pay into multiple funds, all contributions are tallied toward the single cap. To avoid paying extra taxes, you need to be aware of your contribution cap. 

So, how can you save yourself from super contributions tax while still boosting your super fund? 

Contributions are generally taxed at 15%, but this rises to a 30% tax rate for earners making more than the Division 293 threshold of $250,000. If you receive a pension from your super then your earnings on the assets that support the pension are tax-free. Investments outside of your super might be taxed at your marginal tax rate. 

The most important thing to remember is to keep your contributions below your cap, if you exceed the cap you can be taxed at up to 94%. It's always wise to seek advice from a professional who can keep you on the right track if you have concerns. 

  • Salary sacrifice is an excellent way to boost your super. It means your employer pays a portion of your salary directly into your super on top of the minimum percentage they make for eligible employees. By paying from your before-tax earnings you secure a 15% tax rate as long as you stay under the cap. 
  • Some people may be entitled to government co-contribution, the maximum annual cap for this is $500. It isn't part of your assessable income, which means there is no need to pay superannuation tax on it once it's in your super. 
  • Personal contributions are an easy way to boost your or your spouse's fund. This comes from your after-tax income and is in addition to those made by your employer. It doesn't include those contributions from a salary sacrifice. If you claim a tax deduction, then it becomes a concessional contribution. 
  • Spousal contributions are not eligible for super contributions tax deductions, but your spouse might be able to claim up to $540 as a tax offset if they earn $40,000 or less. 
  • You can continue making contributions to your super fund if you are not currently working as long as you are under 67 years of age. There are after-tax contributions you can make provided you were employed for 40 hours over 30 continuous days during the year. This can reduce your taxable income. 
  • Contribution splitting is an option if you want to transfer before-tax contributions to your partner's account. These contributions are generally from the previous financial year. You can transfer up to 85% of concessional contributions or up to the cap for that year. That amount won't count toward your spouse's contribution cap because it was previously counted against your cap.

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After Tax & Before Tax Contributions 

There are two types of super fund contributions.

Concessional/Before Tax

Concessional contributions are made from income that hasn't been taxed yet. They are also known as before-tax contributions. Once these contributions are in your fund, the tax rate applied is 15%. You will pay an additional contribution tax if you exceed the concessional contributions cap. 

 Concessional contributions include employer super contributions and constitutionally protected funds.

Non-concessional/After Tax

Non-concessional contributions are made from income that has been taxed. These are also known as after-tax contributions. They will not be taxed once they reach your super fund, but you can be taxed on non-concessional contributions if you exceed the cap. 

Non-concessional contributions include contributions from your spouse, contributions you make without claiming as a deduction, and contributions made from after-tax income, whether by you or your employer.

If you exceed your contribution cap, you will be taxed at your individual marginal tax rate, as well as your Medicare levy. Though you can withdraw 85% of the excess contribution, it will still be subject to the excess superannuation contributions tax, plus the Medicare Levy. If you are eligible, you might be permitted to carry the unused contribution cap from previous financial years.

For example:

Matthew has $112,000 in his super fund and an annual salary of $120,000. His employer's super contribution was $11,400 and his personal contribution was $10,600 for a total of $22,000. The cap was $27,500, so Matthew could potentially carry through $3,000 remaining into the next financial year.

Unused concessional contribution caps can be carried for five financial years. However, you are only eligible to use this if your total balance is under $500,000 at the end of the previous financial year. 

You may be eligible for a low-income tax super offset. The ATO will automatically determine your eligibility if you earn less than $37,001. This makes you eligible for a tax offset of up to $500 annually.

QuickBooks Can Help 

If you want to easily manage your tax returns and lodge them automatically, use QuickBooks tax software to calculate the tax you pay, investment earnings and tax offsets and allow you to file your tax return with ease.

While every care has been taken to ensure the accuracy of the information presented as at 12 April 2024, Intuit is not providing you with professional advice and we recommend you obtain your own professional advice. Intuit is not liable for your use of the information presented.

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