What is Superannuation?
Superannuation is payments made by your employer to a designated fund meant for your retirement. Your employer is required to pay 9.5% of your ordinary time earnings once you earn more than $450 in a calendar month, and up to $54,030 per quarter.
This payment is a tax effective way for you to save up for your retirement and these funds can only be accessed once you have met preservation age.
Preservation age is the age you need to be before you are able to access your superannuation funds.
If you were born before the 1st of July 1960, your preservation age is 55. This means when you reach the age of 55, you can access your superannuation benefits. If you were born between the 1st of July 1960 and 30th of June 1961, your preservation age is 56. If you were born between the 1st of July 1961 and 30th of June 1962, your preservation age is 57. If you were born between the 1st of July 1962 and 30th of June 1963, your preservation age is 58. If you were born between the 1st of Jul 1963 and 30th of June 1964, your preservation age is 59. Finally, if you were born after the 30th of June 1964, your preservation age is 60.
There has been a lot of talk amongst the members of parliament to increase this preservation age right up till 70. However, this is not yet law and the change may never eventuate.
Can I add additional funds to my superannuation?
The answer is not a simple yes or no. You, as a superannuation account holder, can utilise several ways to add funds onto your super – pre-tax salary sacrifice, personal after-tax contributions, government contributions and by transferring funds from any of your foreign superannuation accounts. There are caps that you should be aware of before contributing extra funds into your superannuation account so be sure to take note of them and do not over-contribute or risk being penalised.
What are contribution caps?
Contribution caps limit the amount that can be added to your superannuation account each financial year. These caps are indexed annually and should you contribute more than the allowable cap, you may be liable for additional tax on the excess contributions. Learning more about contribution gaps and other related finance topics by studying a Diploma of Accounting Online by visiting edna.edu.au to find out more about diploma of accoutning qualification
Contribution caps vary depending on the type of funds you are adding to your superannuation account. For example, the concessional contributions cap from the 1st of July 2017 onwards is $25,000 for all individuals regardless of their age. From the 1st of July 2018, you can make ‘carry-forward’ concessional super contributions if you have a total superannuation balance of less than $500,000. Any unused concessional contribution caps can be rolled over for 5-years. With non-concessional contributions, from the 1st of July 2017, if you are between the age of 65 and 75, you have a yearly cap of $100,000. If you are under 65-years old, you are entitled to contribute up to $300,000 over a 3-year period. You can refer to the table at the bottom here for more information. If you exceed this cap, there is a tax of 47% levied on the excess contributions and will be personally liable for this tax. Speak to your accountant or financial adviser for individual advice.
Concessional contributions (pre-tax contributions)
Concessional contributions, or pre-tax contributions, are funds you or your employer make into your superannuation account that are taxed at a concessional rate of 15%. The most common type of concessional contributions are employer contributions, such as your superannuation guarantee (which is currently at a rate of 9.5%) and salary sacrifice contributions. These salary sacrifice contributions are not taxed before they are remitted into your superannuation account, this means you are not double-taxed for these funds. Salary sacrifice is a way for you to save up for your retirement and reduce your taxable income. For example, if you earn over $180,000 a year, instead of paying the highest tax bracket for your income, you could salary sacrifice a certain amount each month to reduce it. The funds salary sacrificed into your superannuation are then only taxed at a rate of 15% and not the highest tax rate. Be sure to observe the caps applicable for concessional contributions!
Non-concessional contributions (after-tax contributions)
Non-concessional contributions, also known as after-tax contributions, are funds you contribute into your superannuation account where no income tax deduction is claimed. Many people add more funds into their superannuation accounts through this way to ensure they have a sufficient amount of savings in retirement to live comfortably off.
Please note, the information on this page is for educational purposes only and not served to be a guide or advice. Speak to your accountant or financial adviser for individual advice, another option is to become an accountant or bookkeeper yourself by taking accounting courses at edna.edu.au to learn the techniques and skills yourself