There are two simple ways to contribute to superannuation.
The first way is by making a concessional contribution — also called a before tax contribution.
It’s called a ‘before tax’ contribution because the money is normally paid by your employer directly to your super fund — before they take tax (PAYG) from your pay and the money is in your pocket.
There are three popular ways to make before-tax contributions to a super fund:
- As part of the super guarantee. This is mandatory and must be paid by the employer for most adult employees. When you start a new job, your employer must give you a form to choose a super fund. If you don’t choose a fund, the employer will choose one for you.
- A salary sacrifice arrangement can be used to make a before tax contribution. This is set up between you and your employer.
- Finally, you may be able to make personal contributions from your own pocket and claim a tax deduction.
For example, Ben works full-time earning $50,000. Because Ben is an employee, his employer must pay the super guarantee into the super fund he chose when he started work. In addition, Ben arranges to salary sacrifice an additional $5,000 into super and wants to make a one-off $1,000 contribution to super, for which he claims a tax deduction.
The other way to add money to super is by making a non-concessional contribution. It’s also called an after-tax contribution because the contribution is paid out of your own pocket after your employer has withheld tax.
For example, Eve wants to add money to her super fund. She has saved $4,000 over the past year in a bank account. Eve contributes the $4,000 to the super fund via Bpay and does not claim a tax deduction.
Why would someone make an after-tax contribution?
There are tax advantages to adding extra money to super from your own pocket, and you may be able to contribute more money in one go. Speak to your accountant.
Whichever way you add money to super, it’s vital that:
- Your super fund has your tax file number
- You get professional advice from an accountant or adviser
- You remember that there are yearly caps on the amounts you can add to super. If you go over them, you may be slugged with extra tax.
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