What Are Pre-tax Super Contributions?
Do you want to increase your super contributions? Whether you’re employed or self-employed, you can make voluntary contributions to your super that you can enjoy upon retirement.
Salary sacrifice is a form of pre-tax contribution to your super account. The goal is to put more into your retirement savings and gain an immediate tax benefit. You can choose how much to contribute before receiving your salary, effectively reducing taxable income.
In deciding to make a salary sacrifice, assess first your income and expenses to determine how much you can put into your super. After that, arrange with your employer to put the desired amount into your super account instead of your salary account.
Compulsory super contributions are different from salary sacrifice contributions. Make sure that your employer doesn’t include it in their mandatory contributions.
There’s no limit to how much you can salary sacrifice into super. However, additional tax is imposed on higher contributions in excess of the set caps.
Salary sacrifice contributions are counted as employer super contributions, not employee contributions. This means contributions will be taxed at a maximum rate of 15%. You need to pay extra though if you exceed the concessional contributions limit.
Not all employers offer salary sacrifice options. If this is the case, you can choose to go with personal contributions and take advantage of tax deductions.
Personal Super Contributions
Aside from pre-tax salary sacrifice contributions, you can also make personal super contributions. This option is also an alternative to salary sacrifice if you’re self-employed. Contributions can be in the form of one-off lump sum payments or payments directly made from your bank account.
You can claim deductions on personal super contributions made on a retirement savings account (RSA) or a complying super fund. But you can only benefit from tax deductions If you get income from:
- A foreign source
- Government pensions and allowances
- Investments, including capital gains, dividends, and interests
- Partnership or trust distributions
- Personal business, i.e. self-employed and freelancers
- Salary and wages
- Super fund
To claim deductions for personal super contributions, you must provide a notice of intent from your RSA or super fund provider.
Personal super contributions claimed as deductions are included in your concessional contributions cap. Otherwise, contributions will be counted towards your after-tax or non-concessional contributions cap.
Tax Rate On Pre-Tax Super Contributions
Take note of the following pre-tax super contribution rates that depend on your annual income:
- For income below $250,000, a 15% tax is made on salary sacrifice contributions
- For income greater than $250,000, a 30% tax is imposed on salary sacrifice contributions
If you earn below $37,000 per annum, you’ll enjoy limited advantages in salary sacrifice contributions; a government super co-contribution may be the better choice. Aside from the caps, consider also your age and total super balance when making contributions.
The annual cap for pre-tax super contributions this 2021/22 is $27,000 pa. This includes regular super contributions, salary sacrifice contributions, and other personal contributions where you can claim a tax deduction. If you want to further add to your super, you can still make after-tax contributions that have higher caps.