What is superannuation?

In Australia superannuation (super) is a retirement program covered by government legislation. It is designed to provide and encourage individuals to build a nest egg they can draw on in retirement. Part of the government's incentive to encourage super is provided by tax concessions on both contributions and withdrawals.

There are two phases to superannuation. The first is what we call accumulation phase. This is when contributions are being made to super by your employer, yourself or another party. The second phase is pension phase which is when you are eligible to withdraw your super normally as a regular income stream but also as lump sum withdrawals. The main differences between accumulation and pension phases are:

  • Investment earnings are taxed upto 15% in accumulation phase but are tax free in pension phase.
  • Contributions can only be made to an accumulation account, not a pension account.
  • You can have an accumulation account and pension account operating at the same time.
  • You can stop a pension account at any time by withdrawing the funds, if eligible or transferring the funds back to an accumulation account.

There are two types of contributions which can be made into super.

  • Pre-tax contributions also referred to as concessional contributions
  • After-tax contributions also referred to as non-concessional contributions
Pre-tax contributions (concessional)

Pre-tax contributions are treated as assessable income when made to a super fund. The government applies 15% tax to these contributions which is deducted by the super fund and paid to the tax office. Pre-tax contributions include:

  • Employer contributions
  • Salary sacrifice contributions
  • Deductible contributions made by qualifying individuals or self-employed people.
While there is no limit on the amount of pre-tax contributions which can be claimed as a tax deduction, there are limits on the amount of pre-tax contributions which an individual can receive concessional tax treatment (15%) on. If you are under 50, your contribution cap limit is $25,000 for the 2011/12 financial year or $50,000 if you are over 50. These amounts are subject to indexing and constant review by the government so make sure you know the limits each year. If you exceed the cap limit the excess is taxed at 31.5% and remember the cap limit includes the compulsory 9% employer contributions.

After-tax contributions (non-concessional)

After-tax contributions are not treated as assessable income to a super fund and therefore no tax is applied on these contributions. The maximum amount that can be contributed to a super fund is set at 6 times the pre-tax limit, which is currently $25,000. Therefore a person is allowed to contribute up to $150,000 in the current 2011/12 financial year. Unlike pre-tax contributions this limit is the same for all persons regardless of age.

If you are under 65, you can also bring forward up to two additional years of your after-tax contribution cap limit making it possible to contribute up to $450,000 in one financial year.

A person who is 65 or older is not able to bring forward their cap limits and must meet the work test in order to make a contribution after turning 65. After-tax contributions can include the following types of contributions:

  • Personal contributions made with after-tax income.
  • Proceeds from the sale of a business or asset
  • Proceeds from an inheritance
  • Transfer of all or part of an overseas super fund.
  • Pre-tax contributions in excess of your contribution limit
  • Contributions made by your spouse (non-employer)
source: superbiz


Rob Bourne has been involved in the financial services industry for over 35 years. As a practising financial adviser he focuses on the need for practical and down to earth financial education. The aim is to educate people through financial education so they can take control of their own financial future. Visit Rob's website here for more information on business opportunities, investing and financial education or the complete guide to superannuation a...

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