When it comes to retirement, we all aim to have a substantial nest egg. This often means trying to contribute as much as we can to our superannuation. However, our financial circumstances often limit how much we can spare each month to put into our super.

But don’t despair! Whether you’ve come into some extra cash or are just managing to make ends meet, there are several superannuation concessions available that can help you make the most of your super.

Understanding Superannuation Tax Concessions

Concessional Contributions

Concessional contributions refer to the funds you can contribute to your super each year from your pre-tax income. As of July 1, 2021, you can contribute up to $27,500 into your super fund. This includes your employer’s 11% super guarantee contribution, any salary sacrificed amounts, and tax-deductible personal contributions. This is known as the concessional contributions cap.

From July 1, 2018, if your superannuation balance is less than $500,000, you can carry forward the unused part of your annual concessional contributions cap for up to five years. The unused cap amounts you can carry forward depend on the amount you have contributed in previous years, starting from 2018-19. Unused cap amounts are available for 5 years and expire after this.

If you make concessional contributions that exceed the $27,500 annual cap, the excess is included in your assessable income for income tax purposes as excess contributions. A tax offset of 15% is available to recognise that 15% tax has already been deducted on the original contribution. You can withdraw up to 85% of your excess contributions from your super fund to pay your income tax liability.

Tax-deductible Personal Contributions

You can make additional concessional contributions up to your concessional contributions cap and claim an income tax deduction for doing so. This can be done using your self-employed income, employment income, investment income (including dividends or rental income), and capital gains.

After-tax Contributions

After-tax contributions, also known as ‘non-concessional contributions’, are another way to top up your super. These contributions are made by simply depositing your own money into your super account. If you have some spare cash, this is a great way to boost your retirement savings because the money is then in a low-tax environment, meaning you’ll generally get a better return than if you’d invested in the same assets outside super.

Contributions from your after-tax income don’t get taxed when your fund receives them because you have already paid tax on the income from which the contribution was paid. From July 1, 2021, you can pay up to $110,000 in non-concessional contributions each year. However, if your superannuation balance is more than the general transfer balance cap ($1.7 million for 2022-23 and $1.9 million for 2023-24) you cannot make non-concessional contributions.

There is also a three-year “bring-forward” rule for taxpayers who are under 75 years of age which allows you to make a contribution of up to $330,000 for the current and next two income years.

If you make non-concessional contributions into your super fund that exceed the cap, you can withdraw the excess without suffering a financial penalty. However, any earnings which arise within the super fund and which are attributable to the excess contribution will be included in your assessable income for income tax purposes and taxed at your marginal tax rate (less a 15% tax offset).

Government Co-contributions

The Government has an incentive program to help you save for retirement. If your total income is less than $43,445 (for 2023-24), the Government will match your eligible superannuation contributions by 50 cents per dollar up to a maximum of $500 per year.

The superannuation co-contribution phases down for eligible individuals with total income between the lower and higher income thresholds. The superannuation co-contribution ceases once the upper threshold is reached. The upper threshold is $15,000 above the lower threshold making it $58,445 for the 2023-24 year.

To qualify for the government co-contribution, you need to meet a number of conditions:

• You must have made an eligible personal superannuation contribution to a qualifying superannuation fund during the financial year.
• Your total income is less than $58,445, made up of assessable income plus Reportable Fringe Benefits and Reportable Employer Superannuation Contributions reduced by eligible deductions (if any) from carrying on a business.
• You are under 71 years old at the end of that tax year.
• You lodged an income tax return for that financial year.
• You have not held a temporary resident visa at any time during the financial year.
• You earned 10% or more of your total income from being employed, running a business, or a combination of both.
• Have a total superannuation balance of less than the general transfer balance cap ($1.7 million for 2022-23 and $1.9 million for 2023-24) at the end of 30 June of the previous financial year
• Your non-concessional contributions have not exceeded the non-concessional contributions cap for the year

If you meet these conditions and earn less than $58,445 (‘total income’) for the 2023/24 year, you then make a non-concessional (after-tax) contribution to your superannuation fund. You lodge your tax return, and within 60 days, the Government pays the co-contribution into your superannuation fund.

Low-income Superannuation Tax Offset

If you earn income up to $37,000, you will receive a refund into your superannuation account equivalent to the tax paid on your concessional superannuation contributions (for example, the super paid for you by your employer) up to a cap of $500. This means that most low-income earners will pay no tax on their super contributions.

Paying Super to Your Spouse’s Super Fund

If your spouse earns a low income or doesn’t work at all, you can claim a tax offset if you contribute to a complying superannuation fund on their behalf. You can claim an 18% tax offset of up to $540 per year. To qualify, your spouse’s assessable income plus reportable fringe benefits amounts and reportable super contributions must be less than $37,000. Above that, the offset is gradually reduced and cuts out altogether once your spouse’s income exceeds $40,000.

Conclusion

Understanding and leveraging these superannuation concessions can significantly boost your retirement savings. However, navigating the complexities of superannuation can be challenging. Therefore, it’s crucial to seek financial advice to ensure you’re making the most of your super and setting yourself up for a comfortable retirement. Remember, every little bit counts when it comes to your future financial security.