There are many ways to build your future
Contributing to your super isn’t rocket science, but it can be confusing. There are quite a few different types of contribution and even more terms to describe them so when you write about contributions you come across the word “contributions” over and over again. After a while it all starts sounding like Charlie Brown’s teacher; “Wah wa-wah wa-wah…."
The bottom line is this: a contribution is money you pay into a super fund to save for your retirement.
Everything else is nuance.
Before we get to the detail, keep in mind that we’re only describing what each term means here, not the rules and regulations around each. That you can get here, because seriously… Wah wa-wah wa-wah….
There are two types of contribution, right?
You’ve probably read that there are two types of contribution; concessional and non-concessional. The difference between the two is the way they’re taxed; or more precisely, “how they’re treated for tax purposes”.
are paid into your super before income-tax is applied. Instead, the money is taxed at 15 percent as it enters your account. So if $100 comes out of your pre-tax pay, $85 ends up in your account. If you’re used to paying 32.5, 37 or 45 cents in the dollar, that’s a pretty sweet deal. If you earn $300,000 a year or more you’ll pay 30% tax on these contributions; still a good deal less than your marginal income tax rate.
are paid into super after income-tax is applied. Since you’ve already paid whatever income tax rate applies to you, no further tax is charged when your contribution goes into super.
The devil is in the detail
Unfortunately, it’s a bit more complicated than that because there are different types of “concessional” and “non-concessional” contributions; four of each in fact.
Concessional contributions include:
Superannuation Guarantee (SG) contributions
These are paid by your employer at, as the name suggests, a guaranteed rate; currently 9.5% of your gross income; set to rise to 12% by 2025. Superannuation Guarantee is usually abbreviated to SG, probably to make things easier for the boffins who discuss such things amongst themselves – and because financial services folk love acronyms. They are also referred to as compulsory contributions.
Salary sacrifice contributions
These are also paid into super from your pre-tax pay. They’re sometimes called voluntary contributions and are paid according to an arrangement between you and your employer.
Here’s a sample application form you can fill and give to your employer if you’d like to salary sacrifice to your Mercer account.
Not really a separate type of contribution but a term that includes both SG and salary sacrifice contributions.
These are paid by self-employed workers to their own superannuation account. They are not compulsory and may be claimed as a tax deduction, so – just for fun – they are also referred to as personal deductible contributions.
Non-concessional contributions include:
Personal contributions are those you make to your super fund from your after-tax income.
Contributions you make into your spouse’s account. They’re not tax-deductible but you might get a tax-offset if your spouse earns less than $13,800 a year. There are many rules.
The Federal Government put these into your account if you’ve made a personal contribution and you’re eligible. Again, there are a few rules, but this is a really good scheme for people earning less than $50,000 a year.
Low-income super contributions
These are essentially a refund of tax you’ve paid on your super contributions, up to $500. Again it’s paid by the Federal Government and it happens automatically if you’re eligible.
A whole other kind of contribution – in specie
In-specie is a Latin phrase meaning “in its actual form”.
So, in specie contributions are contributions in the form of an actual asset, rather than money; for example, transferring the title of an office building into the name of your SMSF trustees or transferring privately held shares into your “Super Wrap” account. Again, there are lots of rules; it would be a good idea to work with a professional adviser before deciding to move assets in-specie.
That’s it; more or less
And while that should be the last time today you need to read the word contribution, we really should talk about contribution caps, contribution splitting, contribution rebates and maybe even contribution holidays.
Yeah; maybe later.
Want to talk to someone about contributions? Call the helpline on 1800 682 525.