Taxes are a part of superannuation planning. It’s important to understand how and when you will be taxed because this will affect the amount you save over the years. There is some confusion about why taxes are taken out when contributions are made. The first thing to understand is that, at some point, your super contribution will be taxed either by your super fund account or by you.  The only way this is not the case is if you do not pay income tax on personal income and then make an after-tax contribution.

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After-Tax Contributions

After-tax contributions, also called non-concessional, means that you are paying funds to your super using income that was already subject to a tax. For those who are employed and work for someone else, your employer usually takes out PAYG taxes from your income. Your contribution is deducted from the remaining after-tax wages.

When this happens, your contributions will not be subject to additional taxes once they are added to your super fund. Your super must be aware that it is a non-concessional contribution in order to ensure that no other taxes are applied.

Before-Tax Contributions

You also have the option of making before-tax, or concessional, contributions. This just means that money is going in that has not been subject to any taxes beforehand. When this happens, your super will deduct 15% as a contributions tax.

Individuals who earn under $37,000 annually whose employer makes concessional super contributions on their behalf will receive a refund of all paid contributions taxes. This is paid to your super account by the government. This refund is called the Low Income Super Contribution or LISC. Employees should be aware that concessional contributions include:

  • Any additional employer contributions
  • Salary sacrificed contributions
  • Tax deductible contributions
  • Employer’s superannuation guarantee payments

Incorrectly Paid Super Contributions

Anyone who is contributing to a super is advised to pay close attention to your funds and how they are added to your super. This is the best way to ensure that they are being applied the way you want and taxed appropriately. If you notice that your after-tax contribution is being treated like a before-tax contribution, contact your super right away to correct the issue. You can also reach out to Brian at Bis Cosgrove to learn more about how to pay taxes and get the most out of your superannuation fund.