In this guide, you will come to know which contributions are after-tax or before-tax and how tax and super rules apply to them.
Tax and restrictions on contributions
Your super is taxed at a lower rate than most investments and income. However, if your contributions surpass thresholds that apply to non-concessional and concessional contributions, the amounts above the caps will be taxed at a higher rate. The tax you pay on super contributions relies on:
- The source of the contributions – whether they are paid from your concessional contributions or non-concessional contributions.
- Whether you surpass the non-concessional or concessional contribution caps
- Your income level – if you are a high-income earner you may be liable to pay extra tax.
If you have multiple super fund, all your contributions to all funds are added up and count towards your caps. How much you need to contribute to your super fund, and whether your fund is allowed to accept your contribution may also depend on your work status and age and your aggregated super balance. If your concessional super contributions and income together make more than $250,000 in a financial year, you may need to pay Division 293 tax on your contributions.
Concessional contributions
Concessional contributions are contributions to your super fund made from income that has not yet been taxed. They include:
- Employer contributions, such as
- Employer SG contributions and any superannuation guarantee charge shortfall amounts the ATO has collected from your employer when they don’t pay contributions to your fund on time
- Salary sacrificed contributions.
- Additional before-tax contributions your employer makes as part of an agreement with you, or under an award or other industrial instrument.
- Other amounts paid by your employer from your before-tax income to your super fund.
- Personal contributions you are eligible to claim and have claimed as an income tax deduction.
- Paid parental leave superannuation contributions.
- Notional taxed contributions to defined benefits and constitutionally protected funds.
- Unfunded defined benefit contributions.
- Some amounts allocated from a fund reserve.
- Amounts transferred from a foreign super fund where the assessable amount is higher than the vested amount at time of transfer.
- For people over 18, contributions by
- A spouse living separately and apart from you permanently
- A parent, child, friend, or relative
- Any other third party other than an employer or your spouse.
Concessional contributions are taxed in your super fund at a 15% rate. The tax is paid from your contributions by your super fund. For more information, engage the best accountants in Melbourne for your business.
Non-concessional contributions
Non-concessional contributions are contributions to your super fund made from income that has been taxed. They are not liable to additional tax unless you surpass the cap. Non-concessional contributions include:
- Contributions you or your employer make from your after-tax income.
- Contributions your current partner makes to your super fund.
- Personal contributions you haven’t claimed and been allowed as an income tax deduction.
- Extra concessional contributions you have not released from your super fund.
- Contributions surpassing the lifetime CGT cap allowable that fall under the small business CGT exemptions.
- Retirement benefits you release from a super fund and re-contribute to super and which you have not claimed or been allowed as an income tax deduction.
- Contributions made for you by someone else if you come under 18 and the contributor is not your employer.
- Most transfers from foreign super funds, not including amounts in your fund’s assessable income.
- Fund fees and life insurance premiums.
Exclusions from non-concessional contributions
The following types of contributions don’t fall under your non-concessional contributions cap:
- Personal injury payments
- Contributions you choose that will be counted toward your capital gains tax cap that have not surpassed your lifetime limit.
- Downsizer contributions from the proceeds of selling your home
- Re-contribution of COVID-19 early release superannuation amounts.
It might be difficult to understand these concepts if you are not familiar with these terms. That’s why it’s better to hire accountants Melbourne for your business, so they can handle these matters for you.
Conclusion
The blog sheds light on the basics of concessional and non-concessional contributions. You can reach out to Reliable Melbourne Accountants to stay updated on these concepts for your company.