So, one of your mates mentioned that they contribute extra money into their super account and it means they pay less tax.
"That sounds interesting, maybe something worth knowing about," you think.
So you jump online to do some fact-checking, and BAM!
You come across this blog post, answering questions you didn't even know you had.
It’s not a complete guide, but it should be enough to get you started.
How good.
How your super gets taxed
Basically, there are three different points at which your superannuation contributions can be taxed:
1. When it enters your super fund (contributions)
What is super contributions tax? Let’s break it down.
The most common super contribution is an employer contribution. This is what your employer must pay into your super fund on your behalf.
Then there's another type of contribution called salary sacrificing. It's when you ask your employer to pay more than they have to.
You'll pay 15% tax on both types of contributions when they hit your super fund. This is because they come from your pre-tax income, and you haven't paid tax on this money yet.
(If your combined income and concessional super contributions add up to more than $250,000, you’ll need to pay an extra tax called a Division 293 tax.)
You can also make after-tax contributions. These are different to salary sacrificing because they come from after-tax money, which means you've already paid your share of tax on them.
2. While it’s in your super fund (investment earnings)
How much tax do you pay on your super balance?
Your money isn't just sitting in your super fund.
The purpose of super is to grow so it can fund a great retirement for you.
Over time, your super is hopefully making you extra money that you can spend when you’re legally able to access it.
This extra money is called an investment earning, but like any investment, investments earnings can be positive or negative.
When your investment earnings are positive, depending on the type of account you have, they’re either tax-free, or taxed at 15%.
3. When it leaves the fund (benefits)
What’s the super benefits tax?
Your super benefit is the amount of super you can access when you retire.
The aim of the game is to retire with the biggest benefit possible.
If you're older than 60, your super benefit is generally tax-free.
This does depend on the type of super fund you're in.
If you get access to your super before you're 60, you'll likely pay some tax. The amount depends on your circumstances.
So, you pay less tax if you contribute more super?
The short answer is yes, but there’s a “BUT” — there’s always a “but.”
I hear what you’re asking. Why not just maximise your super contributions so you can save on tax?
Basically, there's a limit to what you can contribute to your super before you start paying extra tax.
That's because super has contribution caps, which are limits to how much concessional and non-concessional contributions you can add to your super each financial year.
In some cases, you can exceed the caps if you have unused portions of previous years’ caps. It gets a little tricky – you can find out more at our super contributions cheat sheet, or at the ATO.
If you pay more than the caps, you'll likely owe extra tax.
Next steps:
● Learn more about salary sacrificing into your super.
● Make sure you’re making the most of your super with our super contributions cheat sheet.
● And of course, if you’re confused or stuck, the best plan is to call up your super fund for some help.
● Interested in paying extra after tax contributions? If you’re a Spaceship Super customer, you can do it in the Spaceship app.
● You can also visit the ATO website for extra super help.
