Superannuation and tax

Any employer contributions (SGs) and salary sacrifice contributions you make are generally taxed at a lower rate than your normal income. These are called ‘concessional contributions’ and, for the 24/25 financial year, are usually taxed at a rate of 15% for contributions up to $30,000.

Low income super tax offset

For the 24/25 financial year if you earn $37,000 or less a year, and you, or your employer make concessional (before-tax) superannuation contributions on your behalf, then you can expect a refund (up to $500) of the contributions tax deducted from your super account, paid directly to your superannuation account by the federal government. This tax-refund to your super account is known as the Low Income Super Contribution.

Excess contributions tax

If you make super contributions that exceed your concessional contributions cap, these contributions are included in your taxable income, taxed at your marginal tax rate.

Division 293 tax is an additional tax on super contributions, reducing the tax concession for individuals whose combined income and concessional contributions for Division 293 purposes is more than $250,000. It is charged at 15% of the excess over the threshold or the taxable super contributions, whichever is less.

Source: ATO, Caps limits and tax on super contributions, Australian Taxation Office, 01 July 2024.

For more information regarding excess contribution tax, please visit the ATO

Also, if you make non-concessional (after-tax) contributions, and you exceed the non-concessional cap (or, if under the age of 75, the 3-year bring-forward cap) then you will also have to deal with the excess contributions rules.

During the ‘accumulation’ phase, you have an earnings tax of 15% for your super. The accumulation phase is the time you have a super account, when you’re not taking a pension. Typically, you have your account in accumulation phase while you’re working. No tax is payable on earnings from assets financing an income stream (pension); that is, no tax is payable on a super account’s earnings when a super account is in pension phase.

Tax on your super benefits will depend on several factors including:

• Your preservation age;
• Whether the money in your super is taxable or tax-free;
• Whether you receive the payment as an income stream or lump sum.

Note: If you die, and your super benefits are left to an individual that is not a ‘dependant’ under the tax laws, then they will have to pay tax on the taxable component of the death benefit.

Salary sacrificing is the act of re-directing part of your salary, before tax is deducted, into your super fund. When you salary sacrifice superannuation, you only pay 15% tax on those inputs, up to your concessional contribution cap (see below).

So, if your individual income tax rate is higher than 15%, adding your money to super via salary sacrifice has potential tax benefits.

To illustrate, below is an example of how someone could boost their super balance by redirecting a proportion of their pay into salary sacrifice super contributions and make tax savings in the process. Let’s take Jane who earns $90,000, before tax, and decides to redirect $10,000 of her pay into superannuation:

*Based on 2024/25 financial year resident tax rates.

As you can see, while Jane’s take-home pay is reduced by $7,000, her super balance grows by $8,500 providing a net gain of $1,500.

In addition, the higher your tax bracket, the larger the potential gain as salary sacrifice contributions are capped at 15% tax rate for individuals with income (including before-tax super contributions) up to $250,000 per year.

From 1 January 2020, salary sacrificed super contributions will not count towards the amount of super guarantee contributions that your employer is required to make in order for them to avoid the super guarantee charge and does not reduce the ordinary time earnings that your employer is required to calculate your super on.

Source: ATO, Salary Sacrificing Super, Australian Taxation Office, 4 November 2019, <https://www.ato.gov.au/individuals/super/growing-your-super/adding-to-your-super/salary-sacrificing-super/>

For more information about salary sacrifice and how it is excluded from super guarantee contribution from 2020 onwards, please visit the ATO:

Limits do apply to the amount of salary sacrifice super contributions, which brings us to the concessional contributions cap.

To ensure the superannuation tax arrangements support the purpose of superannuation and are financially sustainable, the Government continues to look at the current tax benefits for all Australians. This includes Concessional and Non Concessional contributions caps put in place.

Concessional contributions cap

When aiming to reduce your tax through super, you need to know the limits of your tax concessions. A concessional contribution cap is one such limit. To keep it simple: A concessional contribution to your super is a contribution made from your gross salary, that is, before tax has been deducted. This includes your employer’s super guarantee contribution and salary sacrifice, as they both come out of your pay cheque before income tax.

The concessional contributions cap is $30,000 for the 24/25 financial year.

If you exceed this cap in a given financial year, you will be taxed extra on the amount above the cap.

From 1 July 2018, if your superannuation balance is less than $500k, you will be able to make 'carry-forward' concessional super contributions. This means that you will be able to access your unused concessional contributions cap in future years.

Non-concessional contributions cap

Another limit is the non-concessional cap. The extra contributions you make out of your after-tax salary, or your spouse’s, are considered non-concessional contributions, as they have already been taxed. There is still a limit on how much you can contribute after tax, but it is far higher.

Currently, the non-concessional cap is limited to $120,000 per year.

For those that are under 75 years of age, the bring forward rule applies whereby $360,000 in non-concessional contributions can be made over a 3-year rolling period

For more information, please visit: ATO

If you’re interested in learning more about these contributions, visit the Australian Taxation Office’s (ATO) website, where there are handy videos on both concessional and non-concessional contribution limits.

If you and your spouse or partner meet certain requirements, you may be eligible for an 18% tax offset for after-tax contributions into your spouse’s super account of up to $3,000. The maximum available tax offset is $540 where you’ve made a contribution of $3,000.

It is important to note that the maximum $540 can be received if the spouse is earning less than $37,000 p.a  but if they are earning more than this amount, the tax off-set is progressively reduced until the tax-offset reaches zero for those spouses that are earning more than $40,000 p.a.

It is also important to reiterate that you can’t claim this tax offset if:

• You spouse has exceeded their non-concessional contributions cap for the financial year
• Your spouse’s super balance is $1.9 million (for 2024/25) or more on 30 June of the previous financial year in which the contribution was made

The following is a list of some of the requirements you need to meet. To find a full list, visit the Australian Taxation Office’s (ATO) website.

You and your partner must:

• Both be Australian residents at the time of making the contribution(s);
• Be living together on a permanent basis;
• Your partner’s total assessable income, including employer contributions to super and total fringe benefits, must amount to less than $40,000 per year.

As for your super itself, sometimes it’s worth reviewing the different options to see if you can find a provider better suited to your needs. Talk to us today to see if Virgin Money Super fits your lifestyle.