What is superannuation?
Superannuation is an investment vehicle that allows you to invest, grow and save for your retirement. It is government supported and encouraged and there are minimum percentages that your employer needs to pay into your superannuation.
Interest earned on your superannuation account will be subject to tax of 15% while in the superannuation phase.
Different types of superannuation
There are currently two different types of superannuation accounts. They include:
Defined benefit accounts
These types of accounts are older accounts and are no longer offered. There is no running balance of funds available. Rather there are formulas for member resignation, terminations, disability payments, early retirement and normal retirement. Each superannuation fund will have its own unique formula. They are very complex accounts but generally guarantee a payment to the holder regardless of the amount contributed.
This has now become the most common superannuation fund. The balance of this fund can be seen at any time and includes any contributions that have been made, interest and earnings less any fees paid. It is known as an accumulation fund because your money grows or accumulates over time. The amount paid upon retirement is not guarantee and is subject the remaining balance on the account.
Superannuation Guarantee contributions (SG)
These types of contributions are employer mandated contributions. Employers are not required to make employer contributions for employees earning less than $450 per month.
SG contributions are made prior to the payment of your salary and are consequently pre-tax monies. The funds will pay a tax amount of 15% when contributed into your superannuation account. It will not be subject to tax at your marginal tax rate.
The employer mandated contribution rate is set at 9.5% until July 2021 when it will increase to 10%.
Funds are to be contributed by your employer at least every three months. Payments made into a defined benefit account are calculated using a formula.
Another way to contribute pre-tax funds into your superannuation account to make additional payments prior to receiving your income. This is known as salary sacrificing your income into your superannuation account. Funds contributed are pre-tax funds and are taxed at 15% within the fund.
Limits on contributions
The limit on the amount of concessional contributions that can be made is as follows:
|Year||Age||Concessional contribution cap|
|2016–17||49 and under||$30,000|
|50 and over||$35,000|
If you exceed the contribution limits, your excess concessional contributions count towards your assessable income and are subject to your marginal tax rate plus an interest charge. Therefore, it is important that you disclose all of the concessional contributions you have made.
These are also known as personal contributions. You can choose to make after tax voluntary contributions into your superannuation account. These contributions form part of your tax free component. As the contributed funds have already been taxed, the amount contributed will not be subject to further tax.
Non concessional contributions can include after tax personal contributions made by:
- An individual;
- A spouse; or
- A self-employed person who doesn’t claim a tax deduction for the contribution.
A spouse contribution simply involves a spouse of a member contributing after tax funds into the member’s superannuation account. A spouse can include a husband or wife in either a legal or de-facto relationship (includes same-sex couples).
If you are self-employed, you can claim a tax deduction on your superannuation contributions.
Limits on contributions
The limit on the amount of non-concessional contributions that can be made is as follows:
|Year||Amount of cap|
The amounts will be indexed every year. If you are under the age of 65, you may be able to make a non-concessional contribution of up to three times the non-concessional contribution cap in one year. This is valid over a three year period so you are unable to make any further non-concessional contributions without breaching the cap. This is known as the “bring forward” option.
If you exceed your non-concessional contribution cap, you will be taxed on the excess contribution at the rate of 49% (including the Medicare Levy). You will receive this as a personal tax bill from the Australian Taxation Office. Therefore, it is important that you disclose all of the non-concessional contributions you have made.
Advantages of non-concessional contributions includes:
- Superannuation contributions tax of 15% does not apply;
- Earnings will be taxed at 15%;
- When non-concessional contributions are accessed upon retirement, the funds are tax free; and
- Members may qualify for the Government’s superannuation co-contribution scheme.
From 1 July 2017, non-concessional contributions will be prohibited for superannuation balances over $1.6 million. The non-concessional contribution cap will decrease to from $180,000 to $100,000 and the three-year bring forward rule will remain but the maximum bring-forward amount will decrease from $540,000 to $300,000.
If you are under 65 years, you may be eligible to make non-concessional contributions of up to three times the annual non-concessional contributions cap in a single year by bringing forward your non-concessional contributions cap for a two- or three-year period. When you make contributions greater than the annual cap, you automatically gain access to future-year caps. This is known as the ‘bring-forward’ arrangement.
The non-concessional contributions cap amount that you can bring forward, and whether you have a two- or three-year bring-forward period, will depend on your total superannuation balance at the end of 30 June of the previous financial year.
For 2017–18 financial year, to access the non-concessional bring-forward arrangement:
- You must be under 65 years of age for one day during the triggering year (the first year);
- You must have a total superannuation balance of less than $1.5 million at the end of 30 June 2017.
The 2017–18 bring-forward non-concessional contribution caps are as follows:
|Total superannuation balance on 30 June 2017||Maximum non-concessional contributions cap for the first year||Bring-forward period|
|Less than $1.4 million||$300,000||3 years|
|$1.4 million to less than $1.5 million||$200,000||2 years|
|$1.5 million to less than $1.6 million||$100,000||No bring-forward period, general non-concessional contributions cap applies|
To help individuals reach their retirement goals, the Government will contribute to superannuation on behalf of eligible individuals. You are eligible to receive the co-contribution if:
- You make an after tax superannuation contribution to a complying fund;
- Your total income (assessable income plus reportable fringe benefits + salary sacrifice to superannuation) is less than $51,021 for the 2016/2017 year;
- 10% or less of your total income is from eligible employment or self-employment;
- You are not a temporary resident at any time during the year;
- You are under the age of 71 at the end of the financial year;
- You have not exceeded your non-concessional contributions cap for that year; and
- You have lodged a tax return for the previous financial year.
From 1 July 2017, in addition to the existing eligibility requirements, you will be eligible for the government co-contribution in a financial year if:
- Your non-concessional contributions do not exceed your non-concessional contributions cap for the relevant financial year; and
- On 30 June of the previous financial year of the contributions, your total superannuation balance is less than $1.6m for that financial year.
For every dollar you contribute from your after tax income, the Government will co-contribute $0.50 cents up to a maximum amount of $500. The rate reduces by 3.33 cents for every dollar of your total income above $36,021 for the 2016/2017 year and cuts off at $51,021 for the 2016/2017 year. If you earn less than $36,021 for the 2016/2017 year then you will eligible to receive the entire $500 if you make a personal contribution of $1000 in one financial year.
If you are eligible, the Government will organise payment of the co-contribution directly into your superannuation account after you have completed your tax return for the financial year in which you have made the contribution.
Who can contribution into superannuation?
|Age||Concessional Contribution||Non-Concessional Contribution|
|SG||Industrial Award||Salary Sacrifice||After tax member contributions||Self Employed||Spouse Contributions|
|Under 65||Accepted||Accepted||Accepted||Contribute up to $300,000 over a three year period.||Contributions are the same as after tax member contributions if the member meets the work test.||Contribute up to $300,000 over a three year period.|
|Between 65-69||Accepted||Accepted||Accepted if the member meets the work test.||Contribute up to $100,000 if the fund has the member’s TFN and the member meets the work test.||Contributions are the same as after tax member contributions if the member meets the work test.||Contribute up to $100,000 if the fund has the member’s TFN and the member meets the work test.|
|Between 70-74||Not Accepted||Accepted||Accepted if the member meets the work test.||Contribute up to $100,000 if the fund has the member’s TFN and the member meets the work test.||Contributions are the same as after tax member contributions if the member meets the work test.||Not Accepted|
|75 and over||Not Accepted||Accepted||Not Accepted||Not Accepted||Not Accepted||Not Accepted|
To be able to access your superannuation fund, you will need to meet a condition of release.
A conditions of release is met when you:
- Reach your preservation ageand retire;
- Reach your preservation age and choose to begin a transition to retirementincome stream while you are still working; or
- Are 65 years old.
Your preservation age depends on when you were born. The table below outlines the current preservation age based on date of birth.
|Date of birth||Preservation age|
|Before 1 July 1960||55|
|1 July 1960 – 30 June 1961||56|
|1 July 1961 – 30 June 1962||57|
|1 July 1962 – 30 June 1963||58|
|1 July 1963 – 30 June 1964||59|
|From 1 July 1964||60|
In some circumstances, you can also access super based on:
- Compassionate grounds
- Severe financial hardship
- Temporary incapacity
- Permanent incapacity.
Where you need to access your funds earlier, you can apply for “financial hardship” with your superannuation fund and the regulatory body which is the Australian Prudential Regulatory Authority (APRA). To qualify for this, you will need to show that you have been on income support payments from Centrelink for a period of 26 consecutive weeks if you have not met your preservation age.
You are also able to apply to the Department of Human Services (DHS) on compassionate grounds but will also need to satisfy their requirements.
Tax paid on superannuation withdrawals
Generally, if you are aged 60 years or above, your lump sum superannuation or pension payments will be tax free.
If you are above the preservation age but below 60 years of age, the tax treatment of your superannuation funds is as follows:
|Tax-Free||No Tax Payable|
|Taxable (includes Medicare Levy)||If you are younger than your preservation age, taxed at 22% (including the Medicare Levy).
If aged between the preservation age and 59 years, the first $195,000 is tax free and the balanced is taxed at 17% (including the Medicare Levy) for the 2017/2018 year.
If you would like to learn more about your Superannuation please contact Cursio Group on (03) 9481 2222, email firstname.lastname@example.org or simply fill out the form below and we will be in touch with you.