Super is quite a complex topic. However it is a topic which we all need to understand as it has a direct impact on the type of lifestyle we lead after retirement. I have written below my understandings of the types of super contributions….

Deducted / Concessional Contributions

These are the contributions that are made from the gross salary (pre tax salary). Since the contributions are made from the pre tax salary, you are getting tax advantages (your pre tax salary is reduced and you pay less tax). These are also called ‘Deducted’ contributions because you can claim an income tax deduction.

These super contributions are taxed 15%...And the tax is paid by the super fund. There is a cap on how much concessional contributions you can pay in a year. You are allowed to make contributions more than the limit but the additional contributions will be taxed 31.5% in addition to the 15% (so in total 46.5%).

There are two types of concessional contributions:

1. Employer Super Contribution:
Your employer has to pay minimum 9% of your earnings base (pre-tax earnings) into either a super account of your choice or into a complying super fund. There are certain restrictions to this rule - if you are either under 18 or earn below 450 pre tax dollars per month, then check with ATO to see if you are eligible for employer’s super contribution. If you are a contractor then you have to check with ATO as well because some contractors are eligible and some are not.

The employer has to pay your super every quarter - If not they will have to pay a surcharge (a late fee). Find out from your employer how often and how much super you get paid. Check your member statements to make sure that the specified amount is being credited. Also make sure that your employer has provided the tax file number to the super fund. Not all employees have the right to choose their own super fund - but if you are one of those who can choose your own super fund, make sure your employer has your fund details or else the money will be deposited into the employer nominated account. If you have changed employers, then provide them with the super fund details within 28 days.

2. Salary Sacrifice:
This is where you enter into an agreement with your employer to voluntarily sacrifice some of your pre tax salary so that that amount can be contributed towards your super. People do this because of the tax advantage - your taxable income is reduced as you are reducing it by contributing some of your pre tax income to to your super.

Once you start contributing to super through salary sacrifice, employers may include it in the 9% compulsory super contribution - in the process you are contributing towards the 9% compulsory super contribution that your employer has to make. So double check all the facts before you enter start sacrificing your salary. By making a salary sacrifice, if you are losing out on 9% compulsory contribution from your employer then you are losing out.

Personal contributions

These are the contributions you make to your super from your after tax salary. These can be the contributions you make from your after tax money or from your personal savings or from your inheritance…Any contributions you make to your spouse’s super account will also come under this category. These are also called ‘non concessional’ contributions or ‘non deductible’ contributions.

There is no contributions tax - So you super is not charged 15% on the way into the super account (as contributions already coming from after tax income). There is a cap on the amount of money you can contribute under this category. If the contributions are above the cap then there will be tax levied on your contributions.

The personal contributions are returned tax free when you retire.

Super co-contribution

To help low and middle income earners save more in their super funds, the government co-contributes to every dollar you contribute. There is of course a cap on the amount of money the government co-contributes in a year.

There you go…Share your thoughts about types of super contributions….

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