Types of Super Contributions

Adding to your superannuation fund, even in small amounts, can help provide a welcome boost to the amount you will have saved for retirement. The two main types of super contributions are concessional and non-concessional contributions.

Concessional Super Contributions

What Are Concessional Contributions?

Concessional super contributions are contributions that are made into your superannuation fund before tax. There are several types of concessional contributions.

Types of Concessional Super Contributions

Concessional superannuation contributions can include:

• Contributions made by your employer, including compulsory employer contributions, salary sacrifice payments, other concessional contributions your employer makes or other amounts paid by your employer from your before-tax income to your super fund (such as insurance premiums)
• Personal super contributions that you make and claim an income tax
  deduction for
• Notional taxed contributions if you are a member of a defined benefit fund
• Unfunded defined benefit contributions
• Some amounts allocated from a fund reserve

What Do Employers Contribute to Superannuation?

If you are eligible for super guarantee (SG) contributions, your employer must pay a minimum of 11.5% of your ordinary time earnings into your super account at least every three months.

Ordinary time earnings are what you earn for your ordinary hours of work, including bonuses, commissions, allowances and some paid leave.

What is Salary Sacrifice?

Salary sacrifice, or salary packaging, is an arrangement between an employee and an employer that allows an employee to pay for goods or services straight from their pre-tax salary.

Salary sacrificing offers a number of key benefits to employees, including:

• Reduced taxable income, which means a reduced tax bill
• Potentially tax-effective access to a wide range of goods and services.

You can salary sacrifice many things, including tangible items such as a car or new computer, or non-tangible items including childcare payments, health insurance, school fees or car loan repayments. Depending on your (and your employers’) circumstances, Fringe Benefits Tax (FBT) often applies to benefits provided under salary sacrifice arrangements.

Most employers offer salary-sacrificing into superannuation to all their employees (which does not attract FBT). However, they may restrict which employees can package other benefits. Check this with your employer – for the purposes of this discussion we have limited our comments to superannuation.

While salary sacrificing into superannuation has many benefits, it is important to be aware that your money will be locked away at least until you reach preservation age; and there are limits on how much you can salary sacrifice into super.

Can I Make Personal Super Contributions Pre-Tax?

Yes, under salary-sacrificing arrangements you can ask your employer to pay a portion of your pre-tax salary as an additional contribution to your super (concessional contribution).

You can also contribute to your superannuation personally and claim this contribution as a tax deduction for personal contributions. By contributing personally and claiming a tax deduction, your net tax benefit will be the same as salary sacrificing. However, by salary sacrificing the pre-amount goes into superannuation straight away, whilst by making tax-deductible contributions you must wait until you complete your tax return before the tax benefit can be enjoyed (i.e. as this is when you will receive the tax benefits of claiming the deduction).

It is also worth noting that if you are going to claim contributions as a tax deduction you must notify your superannuation fund normally by completing a Notice of Deductibility. Your pre-tax and tax-deductible contributions will generally be taxed by the super fund at 15% – the same as your employer’s compulsory contributions. For most people, this will be lower than their marginal tax rate.

It is important to note that concessional contributions are capped at $30,000 each financial year. If you contribute more than this, you may have to pay extra tax. (Please be aware that there are instances where you can use the unused portion from previous years.  This is dependent on the sum of all of your superannuation funds’  balances).

The concessional contribution cap includes the total of your employer and salary sacrificed contributions. It also includes any contributions you personally make into your super and claim as a tax deduction.

Non-Concessional Super Contributions

What Are Non-Concessional Contributions?

Non-concessional contributions are contributions made into your super fund from after-tax income for which you do not claim a personal tax deduction. They are not taxed in your super fund.

Types of Non-Concessional Super Contributions

Examples of non-concessional super contributions include:

• Personal contributions that your employer makes on your behalf from your after-tax income
• Personal contributions you make into your super fund (that are not claimed as an income tax deduction)
• Contributions your spouse makes to your super fund

What Is A Post-Tax Personal Super Contribution?

You can make post-tax personal super contributions simply by depositing your personal money into your super. These are after-tax, or non-concessional super contributions because you have already paid tax on the money.

Currently, the cap for non-concessional contributions is $120,000 per financial year, provided your total super balance on 30 June 2024 was less than $1.9 million.

If you are under age 65 you can bring forward up to two years of the non-concessional cap, allowing you to contribute up to $360,000 at a time, depending on your super balance. If you contribute more than this, you may have to pay extra tax.

What Are Spouse Contributions to Super?

Spouse contributions are a type of superannuation contribution that you can make on behalf of your ‘spouse’ (whether you are married or in a de-facto relationship).

The primary benefits of spouse contributions are twofold:

1. It helps boost your spouse’s superannuation – and thus their retirement savings.
2. It can help you save tax if your spouse has limited income through the availability of a tax offset. For example, if your spouse earns under $40,000, you can receive a tax offset of up to $540 for any super contributions you make on their behalf up to $3,000.

Am I Eligible To Make A Spouse Contribution?

To be eligible to make a spouse contribution, your spouse must either be:

• Under age 75

In addition, in order to be eligible for the tax offset, you must both be Australian residents. Your spouse’s income must be $40,000 or less for you to qualify for the full tax offset.

What Is The Government Co-Contribution?

The Government co-contribution is designed to help low and middle-income earners boost their retirement income.

The Australian Government will make a co-contribution of up to $500 for eligible people who make personal after-tax contributions to their super fund.

Am I Eligible For A Government Co-Contribution To My Super?

To be eligible for a government co-contribution you must:

• Earn less than $60,400 per year (2024/2025 fin year) (before tax)
• 10% or more of your total income must come from employment-related activities, carrying on a business, or a combination of both
• Have made after-tax super contributions to your complying super fund during the financial year
• Be younger than 71 years of age at the end of the financial year
• Have a total superannuation balance less than the transfer balance cap at the end of 30 June of the previous financial year ($1.9 million as at 30 June 2024)
• Not have contributed more than your after-tax contributions cap
• Not hold a temporary visa at any time during the financial year (unless you are a New Zealand citizen or it was a prescribed visa)
• Have lodged your tax return for the relevant financial year.

You are not entitled to a super co-contribution for any personal contributions you have made that are claimed as a tax deduction. (concessional contributions)

How Much Will The Government Contribute To My Super?

How much you receive will depend on your income and how much you contributed to your superannuation.

The minimum co-contribution payment is $20 and the maximum is $500. Payment amounts are rounded up to the nearest multiple of 5 cents.

To find out more go to the Australian Tax Office’s webpage on Calculating your super co-contribution.

How Do I Apply For A Government Co-Contribution?

You don’t need to apply for a government co-contribution.

When you lodge your tax return, The Australian Taxation Office (ATO) will work out if you are eligible for a government co-contribution. If your superannuation fund has your tax file number (TFN), the ATO will pay the co-contribution directly and automatically into your super account.

What Are The Contribution Caps?

The concessional contributions cap is the maximum amount of concessional contributions you can make to your super in a single financial year. If you contribute more than these caps, you may have to pay extra tax.

Concessional contributions typically include:

• Employer contributions (including contributions made under a salary sacrifice arrangement)
• Personal contributions claimed as a tax deduction

If you have more than one fund, all concessional contributions made to all of your funds are added together and counted towards the concessional contributions cap.

How Much Is The Concessional Contributions Cap?

Currently, the general concessional contributions cap is $30,000. The cap is indexed in line with average weekly ordinary time earnings in increments of $2,500.   As noted there are instances where you can use the unused portion in future years.  This may mean that you can contribute more than $30,000 in one year depending on your previous years’ contributions and the total balance of all of your superannuation funds.  Speak to a financial planner before exercising this entitlement to ensure that you are eligible.

Can You Contribute More To Your Super Than The Cap Amounts?

Yes, you can – but if you exceed the cap you may have to pay extra tax.

The tax you will pay will depend on whether the contributions were concessional (before tax) or non-concessional (after-tax).

We recommend you talk to a trusted financial adviser before making a decision to exceed either contribution cap.

Contact a Financial Adviser

Here at MBA Financial Strategists, we can help to advise you on building your super fund. To learn more about the different types of super contributions, call the practice or make an appointment with one of our friendly and professional team. We would be happy to help!

MBA Financial Strategists Pty Ltd ABN 13 008 285 756 is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited, Australian Financial Services Licence and Australian Credit Licence No 232 706. This article contains information that is general in nature.  It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This information contained in this article may contain references to other special offers or promotions offered by persons who are not part of the AMP group of companies. AMP has not verified, and is not responsible for, the information provided by other parties or persons not part of the AMP group of companies.  Subject to any applicable law which cannot be excluded, AMP group of companies and MBA Financial Strategists Pty Ltd makes no warranties or representations regarding the quality, accuracy, merchantability or fitness for purpose of the goods or services available from these persons. Your obtaining of goods or services from these persons is at your own risk. AMP group of companies does not accept any liabilities arising from reliance on the access and the availability of the information, or fees and charges that relate to the use of such information.