Superannuation and tax on contributions and earnings

Concessional Contributions (CC) form part of the Taxable Component and are taxed at 15% on entry, up to the CC cap. However people whose income is $37,000 or less may be eligible to receive the Low Income Super Tax Offset (LISTO) which effectively repays the tax paid on concessional contributions back into the super fund. Prior to 1 July 2017 this was referred to as the Low Income Super Contribution.

The tax concession reduces for high income earners as ‘Division 293 Tax’ rules apply. This effectively increases the tax to 30% on concessional contributions made for the portion of income and CCs above the threshold. From 1 July 2017 the assessed income threshold for Division 293 Tax purposes is $250,000. 

The CC cap for 2020/21 is $25,000. For those with super balances below $500,000 catch up CCs may be allowed. 

The cap is indexed to Average Weekly Ordinary Time Earnings (AWOTE) in increments of $2,500, rounded down.

From 1 July 2021, the concessional contributions cap is $27,500.

Breaching the CC cap means the excess contributions are included in the member’s income and taxed at their marginal tax rates plus an interest charge. A tax offset of 15% is allowed for the tax already paid in the hands of the fund. You can provide the fund a release authority for 85% of the excess, which is then released to you. If the excess is not released and is held in the fund, the excess is counted towards your Non-Concessional Cap and you still pay tax on it.

To learn more about the Division 293 Tax and receive up-to-date information about the CC cap, visit the Australian Tax Office (ATO) website.

No tax is payable on NCCs within the applicable cap. However, any excess is subject to tax. If you exceed the NCC cap, you can have all of the excess contributions and 85% of the earnings refunded to you. You will still have to pay tax on those earnings yourself at your Marginal Tax Rates (MTR), but you receive a 15% tax offset for tax paid by the fund on those earnings. If you leave the excess contribution in the fund, it will be taxed at the top MTR including Medicare levy.

From 1 July 2017 the NCC cap is $100,000 for those with superannuation balances of up to $1.6M. Subject to certain conditions a ‘Bring Forward’ rule may apply which allows up to three times (x3) the cap to be contributed in a financial year. 

From 1 July 2021, the non-concession contributions cap increased to $110,000 as a result of indexation in line with average weekly ordinary time earnings (AWOTE). If you contribute more, you may have to pay extra tax.

To encourage NCCs on behalf of a spouse, the Federal Government offers a tax offset of up to $540 per annum on eligible spouse contributions. Spouse contributions are non-concessional contributions and are subject to the receiving spouse’s NCC cap. See the ATO website for more information.

To encourage NCCs a co-contribution is paid by the Federal Government to eligible contributors. 

Co-contributions paid form part of your tax free component when withdrawn.

Anyone who is eligible to make voluntary superannuation contributions is also be eligible to make personal (tax deductible) Concessional Contributions. Care should be taken to not exceed the CC cap. Contact your super fund to learn more.

If a tax deduction is claimed, tax up to a maximum rate of 15% is applied by the superannuation fund to the portion claimed as a tax deduction.

A complying super fund is one that receives concessional taxation status whereby income (including realised capital gains) within the fund are taxed at a maximum rate of 15% while in the accumulation phase.

Earnings that the fund generates when in the accumulation phase are added to the Taxable component of the members account.

To be considered a complying super fund, the fund must abide by the Superannuation Industry Supervision (SIS) Act. The earnings of a non-complying super fund are taxed at the highest Marginal Tax Rate (MTR) (refer to www.ato.gov.au for individual MTRs).