Superannuation is a portion of your income that is set aside for you to access when you retire. Strict superannuation rules and mandatory fund contributions have put Australians’ retirement savings ahead of people in many other counties that have no required retirement contributions.
Superannuation is fairly straightforward for most of us who earn a wage or salary because it comes out of our pay, and that’s the last we think about it.
But as soon as you start digging deeper into superannuation and tax rules as well as trying to work out if you’ll have enough when you retire, it becomes quite complicated.
Below, we cover details of your employers obligations that you should be aware of as well as a few options for topping up your super with your own contributions.
Will your retirement be as comfortable as your parents or grandparents? Probably not, unless you prioritise your superannuation savings.
First, the basics of superannuation rules…
How much super does your employer need to pay?
Every employer has to pay a minimum 10.5% of their employee’s total earnings (from July 1 2022) into superannuation, know as the Super Guarantee (SG). For example, if your ordinary time earnings for the year are $50,000, your employer must pay $5,250 into your super account.
- The minimum contribution increased from 10% in 2022 to 10.5%. This will be followed by a rise of 0.5% each year after that until it reaches a target of 12%.
- The 10.5% is calculated from your normal pay or salary plus all allowances, commissions and leave loading. It doesn’t include dividends or performance-related bonuses.
For you to be entitled to employer superannuation contributions, you must be under 70 years of age, working either on a full-time, part-time or casual basis and paid over $450 (before tax) per calendar month. If you’re under 18, to be eligible for the employer contributions you also have to be working more than 30 hours a week.
Superannuation standards, rules and compliance
All superannuation funds have to be ‘complying’ and meet legal standards. If you want to check that your fund is a ‘complying’ super fund, you can go to the Government’s free register of complying funds called ‘Super Fund Lookup’: http://superfundlookup.gov.au/
What if I’m self employed?
If you’re self-employed, you decide if you want to join and contribute to a fund. Most self-employed people can claim a full tax deduction for contributions they make to their super until the age of 75.
What happens to my super contributions?
Money in your superannuation account is invested by your super fund. Most super funds offer a variety of investment options that may include shares, property, currency and more complex investment products. With help choosing investment options, consult the super provider and/or get expert advice.
The Tax Office advises that you should check your superannuation situation each year at the same time as you do your tax. To help, they’ve put together a six-step checklist.
Superannuation Contribution Rules and Limits
You can’t put all of your extra money into superannuation. The ATO has a cap on both concessional (before tax) contributions and non-concessional (after tax) contributions.
Concessional contributions are pre-tax contributions made to your superannuation fund.
They include both your employer’s required contribution, plus any additional contributions you make by pre-tax salary sacrifice arrangements with your employer.
Most people are allowed to make pre-tax contributions of $27,500 per year (in 2021).
‘Concessional contributions’ are taxed at the rate of 15% (which is much lower than the tax rate most of us pay to the ATO on our income). The tax is handled by your super fund. They usually subtract this tax amount from your super account and you’ll see this on your super statement.
Concessional Contributions Example
Mark is a laboratory technician who earns $80,000 per year. Mark’s employer makes mandatory superannuation contributions of 10.5% of his salary each year. ($80,000 x 10% = $8,400).
Mark also has a salary sacrifice arrangement with his employer where he contributes an additional $75 per week of his income to his fund. ($75 x 52 weeks = $3,900.
Mark’s yearly concessional contribution is therefore $8,400 + $3,900 = $12,300 per year.
‘After-tax’ contributions (non-concessional contributions)
Non-concessional contributions are post-tax contributions you make to your super fund.
However, the Tax Office has put limits on how much you can contribute each financial year.
Currently, most people (again, depending on your age) can make a non-concessional contribution of up to $110,000.
Above the limit, you have to pay even more tax on this money. Currently, above cap, non-concessional contributions are taxed at the highest marginal tax rate.
That being said, after-tax contributions can really boost your super balance, especially now that you might be able to claim a deduction for these contributions on your tax return…
How to claim a deduction for after-tax superannuation contributions
You can claim a tax deduction for after-tax super contributions. These are claimed in the Personal Superannuation Contributions section of your tax return.
If you wish to claim this deduction on your tax return you must first tick of these two items:
- Told your superannuation fund via a “Notice of intent to claim” that you intend to claim your after-tax contributions, AND
- Received acknowledgement back from your superannuation fund.
However, please keep in mind that if you claim an after-tax superannuation contribution on your tax return it is effectively converted to a ‘before tax’ concessional contribution and is included in your $27,500 yearly limit.
You can read more about this by reading our detailed how to claim personal superannuation contributions article.