Tax on superannuation contributions
The tax you pay on your super contributions generally depends on whether the contributions were made before or after you paid income tax, you exceed the super contribution caps or you are a high-income earner.
Before-tax super contributions (concessional)
Concessional contributions are contributions that are made into your super fund before tax. These include employer contributions, such as compulsory employer contributions and salary sacrifice payments made to your super fund and contributions that you are allowed as an income tax deduction. They are taxed at a rate of 15% in your super fund.
Annual contribution cap applies to the amount of contribution you can make each year. Excess contributions are taxed are marginal tax rates.
From 1 July 2021, the concessional contributions cap is $27,500. The increase is a result of indexation in line with average weekly ordinary time earnings (AWOTE).
From 1 July 2017 to 30 June 2021, the concessional contribution cap for each year is $25,000.
Excess contributions tax
There are limits on the amount of before-tax and after-tax contributions you can make each year, and these may vary depending on the financial year and your age.
If you contribute too much to your super, you may have to pay extra tax.
If you exceed the before-tax (concessional) super contributions cap, the excess is included in your income tax return and taxed at your marginal tax rate. You can choose to withdraw some of the excess contributions to pay the additional tax.
If you exceed the after-tax (non-concessional) super contributions cap, you can choose to withdraw the excess contributions and any earnings. The earnings are then included in your income tax assessment and taxed at your marginal rate.
If you do not withdraw the earnings, the excess is taxed at 47%.
Note – Concessional superannuation contributions can be used as an effective tax planning strategy.
Contact Expert Tax on 0449 952 855 or 1300 869 829 for further assistance.