In superannuation, the term contribution refers a payment made to a superannuation fund as a way of savings for retirement and is one of the ways you can put the money to your superannuation account. You can also rollover your superannuation from one fund to another but a rollover is not classed as contribution. However, both contributions and rollover form part of the superannuation account balance which earn interests and the interests are added to the account balance.
There are several different types of contributions that an eligible individual may be able to make to superannuation. These include concessional contributions, non-concessional contributions, spouse contributions and co-contributions etc. In this article, I’ll discuss the two main types of contributions – concessional and non-concessional contributions.
A concessional contribution refers to the money put to superannuation fund before tax has been deducted from it. These types of contributions are made by an employer to a superannuation fund on behalf of their employees. Once received, the superannuation funds are required to deduct 15% contributions tax from it and pay to the Australian Taxation Office (ATO). It is also known as deductible contribution.
There are four types of contributions that fall into the category of concessional contributions. These are:
- the compulsory 9% superannuation guarantee (SG) paid by the employer on behalf of their employees (SG is gradually increasing to 12% by 2019);
- any additional contributions made by the employer above the SG. This is usually known as employer voluntary contributions;
- any salary sacrifice you ask your employer to pay to superannuation; and
- any personal contributions that have been claimed as a tax deduction (usually by a self-employed person).
A non-concessional contribution refers contributions made from the after tax money. For example, let’s say you withdraw $1,000 from your bank account and put in your superannuation account, this amount is classed as a non-concessional contribution as income tax has already been paid on it. The Non-concessional contribution is also known as personal contribution and also used to be called undeducted contribution in the old days.
Unlike concessional contributions, you don’t have to pay the 15% contributions tax on non-concessional contributions. If you’re self-employed, you may be able to claim personal contributions as a tax deduction but if you do, you will pay 15% tax and this contribution will form part of concessional contribution.
A spouse contribution is part of non-concessional contribution. It is the contribution made on behalf of the spouse and the payer is entitled to a tax offset in the tax return.