- 1. Superannuation guarantee
- 2. Tax on concessional (before-tax) contributions
- 3. Special tax rate on investment earnings
- 4. Co-contribution
- 5. Contributions caps
- 6. Fund choice
- 7. Investment choice
- 8. Member reporting
- 9. Preservation
- 10. Tax-free for over-60s
Just over nine years ago, in January 2009, we launched the SuperGuide website, and in March 2009 we published the first monthly SuperGuide newsletter. Since that time we have received thousands of questions, from our millions of visitors, on different aspects of superannuation. We try to represent as many questions as possible in the articles we publish, while also ensuring that we cater for those readers who are just beginning their superannuation education.
The updated Top 10 must-know facts or super rules listed below are a handy guide for those seeking to understand how the super rules work, and the list also serves as a refresher for those readers who may be more familiar with the super rules. You can find more information about each of the super rules outlined below by clicking on the related link in each fact, or by using the search function (see the top of the SuperGuide website).
Top 10 must-know super rules
1. Superannuation guarantee
Your employer must contribute money to your member account in a super fund on your behalf. This obligation is imposed on employers under the Superannuation Guarantee (SG) laws. Compulsory employer contributions are often called SG contributions, and the current SG rate is 9.5%. The SG contributions count towards your concessional contributions cap (see Facts 2 and 5 below).
For more information on SG contributions see SuperGuide article Superannuation and employees: 10 facts about your super entitlements.
2. Tax on concessional (before-tax) contributions
Your employer’s compulsory SG contributions and any before-tax contributions that you voluntarily choose to make (known as concessional contributions) are taxed at a maximum rate of 15 per cent when the super contributions enter the super fund. In comparison, a person earning more than $37 000 a year can expect to pay at least 32.5 per cent income tax for the 2017/2018 year, on that same income (and up to 45% plus Medicare levy if earning more than $180,000 from the 2017/2018 year), when she chooses not to make before-tax super contributions.
For more info see SuperGuide article Super concessional (before-tax) contributions: 2017/2018 survival guide.
Two special rules apply to the following groups of Australians:
2a. Contributions tax refund for lower-income earners
Since 1 July 2012, if you earn less than $37,000 you are likely to get the contributions tax that is deducted from your employer’s SG contributions, repaid into your super account, up to a maximum of $500. This refund is known as the Low Income Super Contribution, and since 1 July 2017, has been renamed the Low Income Superannuation Tax Offset.
For more information on the LISC see SuperGuide article LISTO: Super tax refund for lower-income earners.
2b. Extra 15% tax on contributions for high-income earners
Since July 2012 and until 1 July 2017, if your adjusted taxable income was more than $300,000 a year, the taxman takes 30% of your concessional contributions in the form of tax: 15% as contributions tax, and 15% as Division 293 tax. Since 1 July 2017, the extra 15% tax will also apply to those with an adjusted taxable income of $250,000.
For more information on this extra tax on concessional contributions, see SuperGuide article Double contributions tax for more high-income earners.
3. Special tax rate on investment earnings
Earnings on your super fund’s investments are also taxed, but at no more than 15%. If you’re drawing a pension from your super account, then the earnings on the savings in your pension account are exempt from tax.
For more info on super taxes see SuperGuide article Super for beginners, part 17: Four must-knows about super’s tax rules.
If you make non-concessional (after-tax) contributions to your super fund, depending on your level of income, the government may put some tax-free money into your super fund for you. This is known as the co-contribution scheme.
For more info see SuperGuide article Cashing in on the co-contribution rules (2017/2018 year).
5. Contributions caps
The amount of super contributions that you can make each year is capped, unless you are happy paying extra tax. If you make super contributions that exceed the contributions caps, and you choose not to withdraw those excess contributions, then you will have to pay penalty tax, known as excess contributions tax. Alternatively, you can withdraw the excess contributions from your super account.
For more information on contributions caps and excess contributions see SuperGuide articles Superannuation contributions: Wearing two caps for 2017/2018 year and Excess contributions rules: A quick summary.
6. Fund choice
In many cases you can choose the super fund you want your employer’s SG contributions paid into. If you don’t choose your super fund, your employer chooses for you. In certain instances, your super fund may be determined by an employment agreement or industrial award.
For more information on choosing a super fund see SuperGuide article Fund choice: Comparing super funds in 8 steps.
7. Investment choice
In most cases you can decide how you want your money invested by the super fund, by choosing from your super fund’s investment options. If you don’t make an investment choice, then your super money is invested in a default investment option. The default option is typically invested in range of assets, known as a balanced investment option, although some super funds call the default option, a growth option. Investments are spread across higher risk and lower risk assets as a means of maximising investment returns while managing the risk that some investments may lose money.
For more information on investment choices see SuperGuide special sections Investment options, Superannuation performance (investment returns) and Is my super fund performing?, and more specifically, see the following SuperGuide articles:
- Superannuation investment: What is the difference between a balanced and growth option?
- Super control: How to switch your super account’s investment option
- Super pensions: choosing an investment option in retirement
8. Member reporting
Your super fund must send you regular reports (at least annually) on the fund’s performance, and on your own super account’s performance. Your super fund must also state fees charged, and show you any other transactions on your super account (such as the deductions for insurance premiums and taxes). Typically, your super fund also provides this information via a members-only website.
For more information on what your super account’s report contains, see SuperGuide article Fund choice: Comparing super funds in 8 steps.
Your money is preserved in super until you reach a certain age, with some exceptions. That means you generally can’t take your money (your benefits) out of the super fund until you retire at or after your preservation age (from age 55 if born before July 1960, and if born after June 1960, at least age 56, and if born after June 1961, at least age 57, and if born after June 192, at least age 58, and up to age 60, depending on your date of birth), or when you satisfy another condition of release. To be allowed to withdraw your super you must, in super’s technical language, satisfy a condition of release and these conditions are very specific.
For more information, see SuperGuide articles Retirement Age Reckoner: Discover your preservation age and Age Pension age and: Accessing super early: 14 legal ways to withdraw your super benefits.
10. Tax-free for over-60s
When you retire on or after the age of 60, you pay no tax on your superannuation benefits, unless you’re a long-term public servant. And there’s more! When you receive a super pension (which super funds may also call a superannuation income stream) from your super fund, the earnings on the assets that finance your pension are exempt from tax, even when you retire before the age of 60.