Super Contributions Tax: What You Need to Know (Without Falling Asleep)

So, you know you pay tax on your personal income, right? But did you know that

contributions to your super also get taxed? Don’t worry, it’s not as scary as it sounds. Let’s

break down how much tax you pay, how to avoid any surprises, and why it’s usually worth

the hit to your super.

What is Super Contributions Tax?

Super contributions tax is the amount that the ATO (Australian Tax Office) takes out of the

contributions you or your employer make into your super fund. In simple terms: you put

money in, and they take a bit off the top. It reduces the total amount that makes it into your

super balance.

The Basics of Contributions Tax

Contributions tax only applies to “concessional contributions” - those you’ve claimed a tax

deduction for. These include employer SG contributions, salary sacrifice contributions, and

personal deductible super contributions. So, basically, if you’re getting a tax break, it’s going

to be taxed.

Super Contributions Tax Rate

The standard rate for contributions tax is 15%. That means, for every dollar you put in

through salary sacrifice or employer contributions, 15% will get taken out before it hits your

super account. However, the benefit is that you're still saving on tax overall because you’ll pay less tax on that money than you would’ve if it was in your pocket.

High-Income Earners: Watch Out for the “Extra Tax”!

If you earn more than $250,000 a year, brace yourself - there’s an extra tax called Division

293 tax that slaps on another 15%. Ouch, right? But still, you’re likely saving more in the

long run, so it’s not all bad.

Low-Income Earners: You Get a Refund!

Good news for lower income earners! If you make less than $37,000 a year, you’re eligible

for the Low-Income Super Tax Offset, which means the ATO will refund up to $500 of your

contributions tax. So, you can thank yourself for contributing to your future while getting a

little extra love from the taxman.

Excess Contributions Tax:

Here’s where things get tricky. If you go over your contribution limits, you’ll be hit with excess

contributions tax. This tax is calculated based on whether it’s a concessional or non-

concessional contribution.

Excess Concessional Contributions

If you overdo it on concessional contributions, you'll pay your regular personal tax rate on the excess, minus a 15% offset. If you leave the excess in your super, it could count toward your non-concessional cap, and that could mean even more tax, depending on your non-concessional cap.

Excess Non-Concessional Contributions

If you exceed your non-concessional limit, you’ll be hit with a tax rate of up to 45% (plus a

2% Medicare levy). But you can avoid this by withdrawing the excess and paying tax on the

earnings at your normal tax rate.

Bottom line:

Contributions tax isn’t something to panic about. In fact, it’s a pretty solid way to save on

your personal tax bill while building your retirement savings. Just make sure you don’t go

over the limits, and check with your accountant before making any big moves.

Remember, always double-check with your accountant or financial planner before making

any major decisions about your contribution's strategy.