Super is a long-term form of concessionally taxed savings which is designed to be paid to you when you retire. If you are an employee, your employer is generally required to contribute a percentage of your salary or wages to a superannuation fund for you. Alternatively, you can contribute to your super fund for yourself (or your spouse), or you can negotiate with your employer to sacrifice some of your pre-tax salary in return for them making additional super contributions on your behalf – these contributions are known as salary sacrifice contributions.
To encourage people to save for retirement, the Federal Government provides a number of super tax concessions. These include generally applying a 15% tax rate to employer contributions, which includes salary sacrifice contributions, and allowing your super benefits to be paid tax free after age 60. These concessions can make superannuation one of the most tax-effective ways to save for your retirement.
There are different types of contributions that can be made to your super fund. These are summarised as follows:
- Compulsory employer contributions – these are contributions an employer is required to make on your behalf by law. They include Superannuation Guarantee contributions and contributions required under an industrial award.
- Voluntary employer contributions – these are contributions an employer makes on your behalf in excess of any compulsory contributions. They include salary sacrifice contributions, where you negotiate to give up some of your pre-tax salary in return for additional employer contributions.
- Personal contributions – these are contributions that you make for yourself. Depending on your circumstances, you may be entitled to claim a tax deduction for the amount of the contribution, or you may be entitled to a Government co-contribution.
- Spouse contributions – these are contributions that you make for your spouse.
To limit the tax concessions associated with making super contributions, the Federal Government applies caps to the different types of contributions. Some types of contributions made in excess of these caps are subject to rates of up to 49%.