You can contribute to your super – but how much and when depends. Super contributions come with a lot of strings attached.
There are three ways to grow your super:
1 – Contributions;
2 – Investment income;
3 – Transfers from another super account.
Investment income and transfers are relatively straight forward. They are what they are. Just make sure the investment income is at-arm’s-length.
But contributions come with a lot of ifs and whens. There is a mandatory and a voluntary part. Contributions are either concessional or non-concessional. And there are caps, work-tests and age limits.
It is mandatory for your employer to make minimum superannuation contributions on your behalf whenever they pay you $450 or more (before tax) in a calendar month. This is the superannuation guarantee (SG).
And it applies to all adult employees – full-time, part-time or casual – no matter your age with two exceptions. While under 18, you must work more than 30 hours per week in addition to the $450 before you qualify. The same applies if you work in a domestic setting, for example as a cleaner or nanny.
The current SG rate is 9.5% but set to increase by 0.5% increments until it hits 12% from 1 July 2025 onwards.
Your employer has to pay 9.5% of what you usually earn each month, so your salary for your usual hours of work plus anything extra you usually get – for example commission, bonus, shift loadings or allowances. The official term is ordinary times earnings (OTE). Your OTE doesn’t include overtime.
Your SG entitlement is capped at $5,250.65 per quarter for 2019/20, equivalent to an OTE of $55,270. This is the maximum super contribution base (MSCB). Even if you earn significantly more, your employer only has to pay super up to the MSCB.
If your employer doesn’t pay your SG on time, they have to pay the superannuation guarantee charge (SGC) which consists of your SG payments plus penalties and interest.
Your employer’s SG payments count as a concessional contribution and so trigger a 15% contribution tax upon arrival in your super fund.
In addition to your employer’s SG payments, you can make additional contributions into super. You don’t have to, but you can. Voluntary contributions are also referred to as personal contributions.
They can be in cash or in-specie. A cash contribution is just a bank transfer. An in-specie contribution is when you transfer ownership of an asset. In-specie contributions are usually limited to SMSFs. Government, industry and retail funds are unlikely to accept in-specie contributions.
Once you hit 65, you can only make voluntary contributions, if you work at least 10 hours per week, averaged over 30 consecutive days. So over 30 consecutive days you must work at least 40 hours. This is the dreaded super work test.
Once you hit 75, you can’t make any more voluntary contributions – even if you pass the work test – apart from the down-sizer contributions.
Voluntary contributions are either concessional or non-concessional contributions.
You can contribute up to $25,000 each year before-tax. Before-tax means that somebody claims a tax deduction, either you or your employer. This is called a concessional contribution.
Your employer’s SG payments count towards this cap, but you can use up any remaining cap space with additional personal contributions and claim a tax deduction. If you don’t use up the cap space in one year, you can use it over the following five years as long as your TSB is below $500,000.
Any concessional contributions will trigger a 15% contribution tax upon arrival within your super fund. If your total income plus super contributions exceed $250,000, then your concessional contributions will trigger an additional 15% Div 293 tax.
You can contribute up to $100,000 each year after-tax. After-tax means that neither you nor your employer claim a tax deduction, so this is called a non-concessional contribution.
Spouse contributions you receive count as non-concessional since they trigger a tax offset but not a tax deduction as such.
If you want, you can contribute 3-years’ worth of contributions in one hit. So instead of contributing $100,000 each year, you could contribute more in one year and then contribute less in the following two years, so that all up you don’t contribute more than $300,000 over 3 years.
Once your total superannuation balance (TSB) – so everything you have in super – hits $1.6m, you can’t make any more non-concessional contributions.
Non-concessional contributions don’t trigger any tax upon arrival in your super funds.
So this is a short overview of what you can contribution when and how. If you get stuck, please call or email us. There might be a simple answer to your query.
Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.
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Last Updated on 14 March 2020