Why the special treatment?
To build retirement savings for the future. If every Australian has more super savings, there is less need for the government to support Australians in retirement.
What are the tax benefits?
A concessional rate of 15% rather than personal marginal tax rates that can go as high as 45%. When you retire, super savings can be rolled into a tax-free pension.
How can I contribute to super?
This is where it can get a little complicated and where a financial adviser can help you navigate the best options for you. There are many ways to get money into super. Here are the most common:
- Employer contributions: Mandatory contributions known as SG or employer contributions. Many employers will also make their own voluntary contributions for you. Both count towards your concessional contribution cap.
- Personal concessional contributions: Self-employed contributions to super pre-tax as well as employees making their own contributions as part of a salary sacrifice arrangement with their employer (pre-tax as well). These count towards your concessional contribution cap.
- Personal non-concessional contributions: This is when you have received your income, you have paid tax on it, and then you decide to contribute it to your super fund. These count towards your non-concessional contribution cap.
- Spouse contributions: You can make contributions on behalf of your spouse to their super fund if their assessable income (plus reportable fringe benefits) is less than $40,000. You can also get a tax offset up to $3,000 in your annual tax return. These count towards your spouse’s non-concessional contribution cap.
- Contribution splitting: You can split your concessional contributions each year with your spouse. Most super funds allow contribution splitting but check first. You can split the lesser of 85% of your concessional contributions or the cap.
- Government co-contributions: If you earn below a certain income threshold, the government will match 50% of your non-concessional contributions to super, up to a maximum of $500.
- Downsizer contributions: You can contribute up to $300,000 per person of your home sale proceeds to super. You must be 65 and over. Downsizer contributions don't count towards any contribution caps and contribution age restrictions and work test do not apply.
- First home super saver scheme: You can withdraw your non-concessional contributions and personal concessional contributions from super to buy your first home. The withdrawal is limited to $15,000 per financial year and $30,000 in total. Mandated and other types of contributions don’t qualify so check before making extra contributions for your house deposit.
- Rollover: Where you already have super savings and you transfer from one fund to another.
What are the rules?
Let's talk caps and calcs. Most individuals that work in Australia have super contributions paid into their account by their employer. To be eligible for these Superannuation Guarantee (SG) contributions, you generally need to:
- Be over 18 and earn more than $450 per month or,
- Be under 18 and work more than 30 hours per week.
Current SG contribution ratesare set to increase in the coming years:
Eligibility to contribute to super
For voluntary employer or personal contributions, the following rules apply:
- No restrictions if person under age 67.
- A person aged 67-74 needs to satisfy the work test to contribute or satisfy the work test exemption (see below).
- Once attaining the age of 75, no further personal contributions can be made.
Member and voluntary employer contributions can be made from age 67 to 74 if you have worked at least 40 hours on 30 consecutive days in the financial year of the contribution. For spouse contributions, work test eligibility is only from age 65 to 69. From 1 July 2019, you can contribute in the financial year following your retirement, if your super balance is less than $300,000.
Work test exemption
To qualify for the work test exemption, you must have:
- Satisfied the work test in the financial year preceding the year in which you make the contribution.
- A total superannuation balance of less than $300,000 (this is your balance at 30 June of the previous financial year and you are not required to remain under the balance cap for the whole 12-month period).
- Not previously used the work test exemption (if you use the exemption to contribute and later return to work, you can’t use it again when you retire).
Catch up concessional contributions
If your super balance is below $500,000 on 30 June of the previous financial year, you can carry forward any unused concessional contribution cap for up to 5 years (starting from 2017/18).
Bring forward rule non-concessional contributions
If you are under 67, you can bring forward an additional 2 years of your non-concessional cap into the current financial year. This means you can have a one-off cap of $330,000 in that year if you don’t make any further non-concessional contributions for two financial years.
Total super balance and non-concessional contributions
- You can only make non-concessional contributions if your total super balance (across all accounts) at 30 June of the prior year is less than the Transfer Balance Cap. Refer to the Transfer Balance Cap Knopwledge Hub for more information.
- Your ability to utilise the bring-forward rule is limited by your total super balance:
How do I access my super?
To get access to your super, you must meet a condition of release such as:
- Retirement upon reaching preservation age (see table below).
- Turning 65 years of age.
There are also special conditions of release that may give you access to your super if you meet the criteria:
- Permanent incapacity
- Temporary incapacity
- Temporary early access (COVID)
- Terminal illness
- Temporary visa holder departing Australia
- Severe financial hardship
- Compassionate grounds
Make a withdrawal from super
Once you have satisfied a condition of release you may make a withdrawal from super, however there may be tax payable on this withdrawal as set out in the below table.
Superannuation death benefits
Superannuation does not automatically form part of your Estate as other assets may. The trustee of the fund has ultimate discretion on the payment of benefits on the death of a member. You may notify the trustee of your intentions via a ‘beneficiary nomination’ but it must be a valid nomination with the recipient as your Estate or a financial dependent as defined by law.
There are different options available in the type of nomination you make that will influence the Trustee:
- Non-binding nomination – provides a guide to the trustee for payments.
- Binding nomination – binds the trustee to the nomination made if it is valid. Must be renewed every three years.
- Non-lapsing, binding nomination – as for binding without the renewal requirement.
Taxation of lump sum death benefits
The taxation of the death benefit payment will depend on the ultimate beneficiary of the payment as shown in the table below.