Q: I checked my statement and I put an extra $20 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?
We’re not certain if you’re asking:
- whether you pay any tax at all when you use your income to make super contributions
- whether contributions tax is deducted from super contributions when these contributions enter a super fund, or
- whether you pay income tax on your income before you make super contributions
In any case, we will ensure that we answer all of these questions in a general way. For the specific impact on your super account, we suggest you also chat to your super fund.
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 fall into the following specific category: you don’t pay income tax on your personal income and you then 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 $20,542 (for the 2018/2019 year, and for the 2017/2018 year). The tax-free threshold applies on the first $18,200 of your income, and you will be able to earn up to $20,542 before any income tax is payable, when taking into account the Low Income Tax Offset, and you will also be eligible for the Low and Middle Income Tax Offset. For more information on income tax rates, see SuperGuide article Income tax: Australian tax brackets and rates (2018/2019 and previous years), or contact the Australian Tax Office (ATO), or chat to your accountant.
Non-concessional (after-tax) contributions
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, from your after-tax wages. In these circumstances, no additional tax should be deducted upon entry into the super fund because such contributions are treated as non-concessional contributions, and are sourced from after-tax are non-taxed money.
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 the SuperGuide article Your 2018/2019 guide to non-concessional (after-tax) contributions.
Concessional (before-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. In the past, if you were paying less than 15 cents in the dollar tax on your personal income, then concessional contributions were not considered a tax-effective option. Since 1 July 2012, if you earn less than $37,000 a year, and you, or your employer makes concessional (before-tax) superannuation contributions on your behalf, then you can expect a refund of the contributions tax deducted from your super account, paid directly to your superannuation account by the federal government. The federal government calls this refund of super tax, the Low Income Superannuation Tax Offset. For more information on the LISC see SuperGuide article Learn to love LISTO: low income earners get their super tax refunded.
Concessional contributions include your employer’s Superannuation Guarantee payments, additional employer contributions, any salary sacrificed contributions and tax-deductible super contributions (if eligible). You can find more information on this type of contribution by reading SuperGuide article Super concessional (before-tax) contributions: 2018/2019 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.