Super for beginners, part 3: Why aren’t my super contributions tax-free?

Q: I checked my statement and I put an extra $10 per week into my super and each time an amount is put in, it has been taxed. Is this right? I thought that my contributions were tax-free?

Trish’s response: I’m not certain if you’re asking:

• whether you pay any tax at all when you use your income to make super contributions.
• whether you pay tax on super contributions when they enter a super fund, or
• whether you pay tax on your income before you make super contributions

In any case, I will ensure that I answer all of these questions.

The deal with super contributions is that tax is usually paid on that money at some stage (by you or your super fund account), unless you don’t pay tax on your personal income and you make an after-tax contribution. For example, an individual who may not pay income tax on personal income is someone who has a taxable income of less than $15,000 (for the 2009/10 year).

If you make a non-concessional contribution, that is, an after-tax contribution, you are making a contribution from your after-tax money. If you’re an employee, then typically your employer deducts PAYG tax instalments, and then your pay goes into your bank account, and then a contribution is made from that bank account, or your employer makes that payment for you. In these circumstances, no additional tax should be deducted upon entry into the super fund because such contributions are treated as non-concessional contributions. For a contribution to be treated as a non-concessional contribution however, the super fund must be aware that it is a non-concessional contribution. You can find more information on this type of contribution by reading Your 2009/10 guide to non-concessional (after-tax) contributions.

If you choose to make a concessional (before-tax) contribution, then the super fund deducts a 15% ‘contributions’  tax from the contribution upon entry into the fund. If you’re paying less than 15 cents in the dollar tax on your personal income, then concessional contributions are not considered a tax-effective option.

Concessional contributions include your employer’s Superannuation Guarantee payments, any salary sacrificed contributions and tax-deductible super contributions (if eligible). You can find more information on this type of contribution by reading Super concessional contributions: 2009/10 survival guide.

Note: If you intended to make after-tax contributions, and the super fund has treated them as concessional (before-tax), then you need to chat to your super fund to resolve this matter.

Related articles:

1. Super for beginners, part 6: Can I make concessional (before-tax) contributions while I’m unemployed?
2. Super for beginners, part 17: Four must-knows about super’s tax rules
3. Super for beginners, part 14: Save tax – Supply TFN to your super fund
4. Super for beginners, part 7: Can I split my super benefits with my spouse?
5. Wearing two contributions caps