What is Contribution Tax in Super (2023/24 Guide)

What is Contribution Tax in Super

Knowing how your super is taxed will ensure that you are not paying more than you need to on your superannuation contributions. 

So, what is contribution tax in super and are all super contributions taxed? Is there any way you can reduce the amount you pay in taxes?

Read on for the answers and more.

What is Contribution Tax in Super?

To understand how contribution tax in super works, you first need to know that there are two types of contributions you can make to your superannuation, before and after tax. 

How you top up your super account determines how much tax you pay on super contributions, or if you pay any tax at all. 

Here is a closer look at the two types of super contributions.

Before-tax Contributions 

Also known as concessional contributions, these include:

  • Employer contributions
  • Salary sacrifice contributions
  • After-tax super contributions you claim a tax deduction for

These contributions are taxed at a rate of 15%, lower than the marginal tax rate.

The maximum you can make in concessional contributions for the 2022/23 financial year is $27,500. Any deposit into your super over the concessional contributions cap will be taxed at your marginal tax rate. 

To learn more about maximum contributions in super, this article has all the info you need.

Division 293 tax

Division 293 tax is an additional tax on before-tax contributions that reduce the tax concession for high-income earners. It applies to anyone whose income and concessional contributions are over $250,000.

High-income earners have a higher marginal tax rate than those with an average income, so they get a higher tax concession when they make before-tax contributions to their super. Division 293 imposes an additional tax of 15%, thus bringing the tax concession closer to that of the average income earner. 

After-tax Contributions 

These contributions are made from your after-tax income and include all contributions that you have not claimed a tax deduction for, whether they are personal, from your employer or spouse. 

Non-concessional contributions are not subject to tax

However, if you go over the non-concessional contribution limit of $110,000, you need to withdraw the excess contributions and 85% of associated earnings (the earnings will be taxed at your marginal tax rate). Otherwise, your excess contributions will be taxed at 47%. 

How to Avoid Paying Contribution Tax on Super?

Although you must pay tax on your concessional contributions, there are some ways you can reduce the amount of tax due.

1. Salary sacrifice agreement with your employer

Salary sacrifice, also known as salary packaging, is an agreement between you and your employer that allocates some of your before-tax salary to your super fund. 

This way you are paying less tax and giving your super a boost at the same time.  

2. See if you qualify for a co-contribution or tax offset

The government can contribute up to $500 to your super fund if you are eligible. This is not part of your taxable income and it does not count towards your contributions cap for that financial year. 

3. Add to your super

As stated above, there is no super tax on non-concessional contributions, which means you or your spouse can deposit funds into your super account tax-free as long as you do not exceed the after-tax contributions cap. 

Non-concessional contributions are generally tax-free when withdrawn as well.

What’s more, if your spouse makes $37,000 or less a year, you can contribute to their super fund and claim a tax offset of up to $540. 

Is There Any Other Taxation of Superannuation in Australia?

In addition to paying tax on superannuation contributions, earnings and withdrawals from your super fund are also taxed

Earnings from investments are subject to a 15% tax rate, while the rate on super withdrawals depends on the method in which funds are taken from the account. 

Not happy with how your super fund is performing? Maybe it’s time to take a look at other options.

Finally, you need to pay tax if you are the beneficiary of a super death benefit. The amount you pay depends on several factors, though.

Bottom Line 

As you can see there are a lot of things to take into account when making super contributions, with working out how much tax is one of the top considerations. If you are not sure whether or not you are liable for tax, it’s best to speak with an accountant or financial professional who can help guide you through the process. 

FAQs:

1. Can you claim a tax deduction on super contributions?

You can claim a tax deduction for personal super contributions from your after-tax income if you earn that income from salaries and wages, personal business, investments, super, a foreign source or trust distributions. 

Be aware that any personal payments you make into your super and claim a tax deduction for will count towards your before-tax contributions cap. 

2. How much super can I contribute before tax?

Concessional contributions for the 2022/23 income year are capped at $27,500. Any excess contributions will be taxed at your marginal tax rate. 

3. What is contribution tax in my super statement?

Your super statement is a document provided annually by your super fund which details your investment option, account balance returns, insurance cover and tax payable on contributions. 

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