Contributing to Superannuation
Contributing to superannuation can be done in multiple ways in addition to the mandated employer contributions. Depending on the way a contribution is made and depending on the person’s situation, the contribution may be deductible to that person.
An employee can contribute addition funds to superannuation via a salary sacrifice arrangement where a portion of salary is ‘sacrificed’ for another benefit. The sacrificed funds are made ‘pre-tax’ to the fund and are taxed at 15% when received by the fund. For persons on higher incomes this can be an effective way to contribute more effectively into superannuation as it reduces your taxable income by the value of the sacrificed funds.
In addition the self-employed can make deductible contributions to superannuation and there is no minimum that can be contributed on an annual basis. A person who is substantially self-employed can claim a full deduction for contributions made to superannuation up to the relevant concessional contributions cap.
Contributing to superannuation can also be made from after tax dollars. Any person under the age of 65 and working persons under the age of 75 can make personal contributions to superannuation which are not taxed on entry to the fund.
In addition, for eligible persons on incomes under $31,920 who make after-tax contributions to superannuation in the 2013 financial year, can receive the Government Co-Contribution. The government will match dollar for dollar contributions up to $5000. For incomes between $31,920 and $46,920 the government will match contributions on a sliding scale basis. In order to receive the co-contribution, the contributor needs to submit their tax return.
In order to prevent people placing all their money into superannuation to take advantage of the lower rates of taxation, the government imposes caps on the maximum amount that can be contributed. For tax deductible contributions (concessional) there is a $25,000 per annum cap that includes mandatory employer contributions.
**2012 FEDERAL BUDGET UPDATE: The contributions cap for people over the age of 50 will reduce from $50,000 per financial year to $25,000.
Limits also apply on the amount of after tax (non-concessional) contributions that can be made. In any 3 years a maximum of $450,000 can be contributed.
Any contribution made in excess of either cap imposes severe tax consequences and needs to be effectively managed to ensure that contributors remain within their contributions caps.
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