Voluntary superannuation contributions: how to put extra into your super

In Australia, if you are an employee and you meet certain criteria, then you’re entitled to what’s known as the Superannuation Guarantee. The guarantee means that by law your employer must pay a minimum of 11.5% of your earnings into your superannuation account. This money is held on your behalf by your superannuation fund, until you are eligible to access it, such as when you retire or meet a condition of release. But it’s possible to put more funds into your account via personal or voluntary super contributions.

Due to the complex nature of tax and super contributions, it could be prudent to seek professional tax advice if you are considering voluntary super contributions.

What are voluntary super contributions?

You can choose to contribute extra money to your super – which is called ‘making a voluntary super contribution’ – by either:

1. making a salary sacrifice, which is electing to transfer money from your pre-tax wages into your super account.
2. directly depositing some of your post-tax earnings into your super account.

You may also be able to receive additional super contributions from the federal government in some circumstances.

Let’s take a look at how personal super contributions and government co-contributions work in Australia.

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How can I make voluntary pre-tax super contributions (salary sacrificing)?

You may be able to make pre-tax, or ‘concessional’ contributions to your super by asking your employer to deposit a portion of your weekly, fortnightly or monthly salary directly into your super account instead of your bank account. This type of pre-tax super contribution is known as salary sacrificing.

Do I pay tax on salary-sacrificed voluntary super contributions?

According to the Australian Taxation Office (ATO), salary-sacrificed contributions are not counted as assessable income for tax purposes, which means that they are not subject to pay as you go (PAYG) tax.

But these contributions are still taxed within your super fund, but at a rate of 15%, which is lower than most people’s marginal tax rate. For example, people earning between $45,001 and $135,000 pay a marginal tax rate of 30% for each $1 over $45,000 (in addition to $4,288 in tax).

Keep in mind there is a limit on how much of your pre-tax money you can put into your super each year before you start having to pay extra tax. This is known as the ‘concessional contributions cap’ which currently stands at $30,000 per financial year and includes the regular super guarantee contributions (11.5% of your base salary) made by your employer.

Since the 2019–20 financial year, if some of your caps from previous years haven’t been used and your total super balance is below $500,000, you may be able to make use of the ‘carry forward’ rule to make concessional contributions that exceed the former threshold of $27,500.

Can you withdraw voluntary super contributions?

This will depend on your individual circumstance, but generally you cannot withdraw superannuation guarantee or voluntary contributions until you turn 65 or reach your preservation age and retire. There may be other ways to access voluntary super contributions such as via the First Home Super Saver Scheme (FHSS), if you are suffering severe financial hardship or on compassionate grounds due to medical reasons and for temporary residents departing Australia. It’s often worth consulting the ATO or your super fund to understand the eligibility criteria and tax implications of making a withdrawal in one of these ways.

What are the pros and cons of salary sacrificing personal super contributions?

The effectiveness of salary sacrificing depends largely on your individual financial situation, so it could be worth obtaining independent financial advice before requesting or agreeing to a salary sacrifice arrangement.

Potential pros of salary sacrificing for super:

• Salary sacrificing some of your pay into super can be handy because once it’s set up, you don’t have to think about it again unless you want to change the amount being sacrificed or if you want to stop the contributions altogether (though it’s a good idea to regularly check your superannuation account to ensure payments are being made and you are comfortable with its performance).

• Salary sacrificing could also be useful if you’re looking to reduce the amount of PAYG tax being applied to your regular wages. Salary sacrificing into super may also be appealing to some first home buyers.

• According to the ATO, under the First Home Super Saver Scheme (FHSS), first home buyers could withdraw up to $50,000 (plus earnings) in voluntary super contributions to help them buy their first home. For couples, the amount is $100,000 (plus earnings). This can include salary sacrifice contributions and post-tax contributions. You can contribute up to $15,000 per financial year and withdraw up to 85% of eligible before tax contributions, and 100% of eligible after-tax contributions.

Potential cons of salary sacrificing for super:

• Salary-sacrificed contributions may push you over the concessional (before-tax) contributions cap, which may attract additional tax, according to the ATO (the cap is currently $30,000 in a financial year). The marginal tax rate plus an additional excess charge would be applied to excess contributions.

• Once the money is in your superannuation fund, you generally won’t be able to access it until you reach your preservation age. There are ways to potentially access your superannuation early, but otherwise it’s part of your retirement nest egg.

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How can I make post-tax super contributions?

Post-tax super contributions are made from your take-home pay – that is, the wages you receive after PAYG tax has been applied to your gross salary. These contributions can often be made via your super fund’s online portal, through the mail with the relevant form and a money order/cheque or in person (if your super fund has a member’s centre or office).

The cap for post-tax, or ‘non-concessional’ contributions is currently $120,000 per person, per financial year. If you exceed this cap, you may have to pay extra tax. But you may be able to contribute more than the limit if you make use of a bring-forward arrangement.

This arrangment, as specified by the ATO, allows those under 75 years old to make up to three years worth of post-tax contributions to their super in a single income year. This means they can potentially put up to $360,000 – or three times the current $120,000 annual non-concessional cap – into their super in one financial year without having to pay extra tax.

If you choose to make non-concessional contributions to your super account, you may be eligible to claim a tax deduction on these contributions. But if you claim a deduction, your contributions will change from non-concessional (post-tax) to concessional (pre-tax), which means they are subject to contributions tax at a rate of 15% and will count towards your concessional pre-tax contributions cap. It could be worth obtaining suitably qualified financial advice before making this type of tax deduction.

Can I make super contributions for my spouse?

Another strategy that could help to build your super balance is a spouse super contribution. A tax offset may be available to your spouse if you are earning a low income (less than $40,000 at time of writing) or not working at all.

Am I eligible for additional government super contributions?

The government may make additional contributions to your super fund if you meet certain criteria. If you are eligible and have given your tax file number (TFN) to your super fund, the ATO will pay these extra contributions into your fund automatically at tax time. These can include a government super co-contribution and low-income super tax offset.

Government super co-contribution

You may be eligible to receive a post-tax government super co-contribution if you satisfy the relevant criteria.

Specifically, the ATO says you must:

• Have made one or more personal non-concessional super contributions to your super fund during the financial year.

• Pass the two income tests (income threshold and 10% eligible income tests).

• Be less than 71 years old at the end of the financial year.

• Not hold a temporary visa at any time during the financial year (unless you are a New Zealand citizen or it was a prescribed visa).

• Lodge your tax return for the relevant financial year.

• Have a total superannuation balance less than the general transfer balance cap at the end of 30 June of the previous financial year.

• Not have contributed more than your non-concessional contributions cap.

If you meet the above criteria, the government will contribute up to a maximum of $500 (for financial years of 2012-13 onwards) for the lowest income tier specified under the scheme. The co-contribution is paid directly into your super account as a lump sum after your tax return for the financial year has been processed and approved.

Low-income super tax offset

The low-income super tax offset (LISTO) is a government scheme that boosts the superannuation balances of low-income earners. According to the ATO, if you are eligible and earn $37,000 a year or less, the government will contribute 15% of the total pre-tax contributions made by you or your employer into your super account at tax time.

The maximum amount you can receive for a financial year is $500, and the minimum is $10. You don’t need to do anything to receive a LISTO payment if you are eligible. It will be paid directly into your super fund account once your tax return has been processed.

Can you contribute to your super after the age of 75?

Once you turn 75, you are typically unable to make voluntary contributions to your super (except downsizer contributions) beyond 28 days after the end of the month in which you turn 75. You will still receive super guarantee from your employer, however, for as long as you continue to work.

Read More: Superannuation rules for over 65s

Growing your super with extra contributions

These are a few ways in which you could boost your super balance by making personal superannuation contributions and could potentially make a difference in the long run when it comes to growing your retirement nest egg.

Before you make any pre- or post-tax contributions, it’s important to consider if this approach suits your current financial situation. It may also be worth looking at other options you may have to help boost your super, such as comparing its performance, as well as the management fees you pay, to other super funds on the market.

For further guidance, consider speaking with a financial adviser regarding your financial situation.

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