Super incentives to top-up superannuation

Six ways to boost your super – including four where the government helps out!

For many Australians, superannuation is something they tick a box for when they start working, and then forget about until they’re nearing retirement ­– confident that their employer has been regularly paying super, as they’re obliged to do.

Unfortunately, many of those Australians also discover that, even though their super balance has been growing over the years, it’s still not going to be enough for them to enjoy the retirement lifestyle they’ve been dreaming of. And often, by then it’s too late.

The key to avoiding this uncomfortable surprise is to make extra voluntary contributions of your own, while you’re still working. And the good news is, the Australian Government even offers a few ways to help out. If any of these appeal to you, there is more info at Prime Super or your super fund.

1. Salary sacrifice. A common approach if you are an employee, where you ask your boss to regularly pay some of your salary into your super – on top of their own compulsory contribution. Because it goes straight from your employer to your super, it’s not included when working out your regular income tax, but instead, is taxed separately, at the lower rate of just 15%. This means less tax taken out on payday, and more money for you in retirement. Just contact your employer to see if they offer salary sacrificing.

2. Contribute and claim. A bit like salary sacrificing, but where you make the payment yourself. It involves you contributing a sum to your super and notifying your fund that you want to make a tax deduction. When they receive your payment, they’ll send out a letter confirming this, and you include it in your tax return – where you also claim the deduction. Like salary sacrificing, the amount you contribute is taxed at a lower rate and is taken into account when the ATO calculates your annual income tax. Self-employed sole traders often use this method to build their super – especially towards the end of each financial year.

3. Government co-contribution. This is an incentive provided by the Commonwealth Government that’s designed to help boost the super of those who are on a low income. As long as you meet some basic criteria, such as earning less than $56,112 p.a. and being an Australian resident (or NZ citizen) under the age of 71, then for every dollar you make as a voluntary payment into your own super, the government will contribute 50¢ – and it’s pretty much automatic, with the ATO looking after all the details and making the payment into your super when you lodge your tax return.

4. Spouse contributions. As well as boosting your own super, you can also contribute to your partner’s super, which is especially beneficial if they’re not working, have a low super balance, work part time, or have a lower income. If they earn less than $40,000 p.a. and meet some other eligibility criteria, you may claim an 18% tax offset (to $540 max) on contributions up to $3,000. You can pay more, but you won’t get extra tax offsets.

5. After-tax contribution. These are contributions you make from your savings etc, and don’t claim a tax deduction on. You don’t pay contributions tax on them as they’ve already been included in your regular income tax (or were tax-exempt), and there’s also a separate, higher limit or cap on how much you can contribute each year. Earnings they make in your super are only taxed at 15% while you’re working, and are then not taxed at all once you retire. They’re very handy if you have a windfall such as an inheritance. All you do is transfer the money to your super fund, and let it work for you there. That’s pretty much it.

6. Downsizer contribution. The final contribution is a special scheme whereby you can put up to $300,000 from the proceeds of the sale of your primary Australian residence into your super, at any time after your 65^th You need to have owned and lived in your home for at least ten years prior to selling it, and it must be a fixed property (i.e. not a caravan or houseboat etc), and you can only do it once – but it’s a great way to really boost your super after you retire.

Be aware of caps
When looking to contribute to your super, you must be aware of specific caps or limits on how much you can pay in each year. In simple terms, there are two caps:

Pre-tax (concessional) contributions: in 2022/23, capped at $27,500 per year including any employer contributions, salary sacrifice, and ‘contribute and claim’ payments.

After-tax (non-concessional) contributions: in 2022/23, capped at $110,000 per year.

These can be a bit flexible though, because there are ways of legitimately ‘averaging’ out contributions at different times in your life, known as the ‘bring forward’ and ‘carry forward’ rules. So, as always, if you have any queries or doubts about super, it’s important to seek specialist financial advice.