Fact Sheet Adding to your super Most employees are building up at least some super savings through the compulsory superannuation guarantee (SG) system introduced in 199. The SG system currently requires employers to pay 9.5% of employees ordinary time earnings into super. The rate is scheduled to rise to 1% by 05 but for most people, it is still unlikely to provide enough for a comfortable retirement. This fact sheet looks at options for adding to your super. There are two types of super contributions: concessional (before tax) and non-concessional (after tax). Each is subject to a cap, which is the maximum you can contribute within a financial year and still receive certain tax concessions. We use the terms before tax and after tax throughout this fact sheet. Before-tax contributions You can make before-tax contributions to your super in two ways: 55from your salary before income tax is deducted (called salary sacrifice) 55from your after-tax income then claimed as a tax deduction, which effectively makes them before-tax Before-tax contributions include: 55compulsory superannuation guarantee (SG) contributions paid by your employer, contributions paid by your employer under certain industrial arrangements (such as an award), and voluntary employer contributions 55salary sacrifice contributions 55personal contributions for which you have claimed (or intend to claim) a tax deduction. Potential tax benefit You don t pay income tax on your before-tax contributions because they are paid directly to your super fund from your before-tax income. Contributions tax of 15% 1 is deducted from SG and salary sacrifice contributions when the money goes into your super fund. So if you make a $100 before-tax contribution, $85 will go into your account. This means anyone with a marginal tax rate above 15% (and that s anyone earning more than $18,00 for the 017-18 financial year) could get a tax advantage by putting money into super before tax rather than taking it as taxable salary. For after-tax contributions for which you claim a tax deduction, the 15% contributions tax is deducted when your fund receives notice that you wish to make the claim. So making after-tax contributions and claiming them as a tax deduction should give you a similar outcome to making salary sacrifice You can use our Contributions Calculator to see the outcome of making contributions before tax (including personal deductible contributions) or after tax, or a combination of both. Go to firststatesuper.com.au/ ContributionCalculator. Tip Think about salary sacrificing any pay rises, tax cuts or bonuses into your super fund. You ll get more money into the tax-favoured super environment and you probably won t miss the money. But what you will notice is the difference that compound interest can make to your super balance over time! Don t forget to keep a close eye on your contributions so you don t accidentally exceed the concessional contributions cap. Limit on concessional contributions From 1 July 017, the cap on before-tax contributions is $5,000 a year for everyone. If you contribute (or contributions are made on your behalf) to more than one fund, the cap will apply to all the funds receiving these It s not an individual cap for each fund. 1 Generally, if your income plus your before-tax contributions is more than $50,000, you ll pay an additional 15% tax on the amount of contributions that lift your income over $50,000. And if your fund does not have your tax file number (TFN), an additional 34% tax will also be deducted from your before-tax The before-tax contributions cap is $5,000 for the 017-18 financial year and it will be indexed in line with Average Weekly Ordinary Time Earnings (AWOTE) in $,500 increments. Module.6 Contributing Adding to your super 1
Fact Sheet Adding to your super What happens if you go over the annual cap? The excess contributions will be taxed at your marginal tax rate (less a 15% offset for the contributions tax paid on the contributions within the fund), and you will pay an additional interest charge to cover the cost of collecting this amount later than normal tax. The Australian Tax Office (ATO) also allows you to apply to have 85% of the excess contributions returned. You apply by completing the ATO s release authority form. The table shows the main features of salary sacrifice and personal deductible Salary sacrifice Personal deductible 1 How do you arrange these contributions? When are contributions paid? How are these contributions taxed? Ask your employer to pay some of your beforetax salary directly into your super account. Not all employers offer this benefit. Deducted automatically from your pay every pay cycle. We deduct 15% contributions tax when contributions are received. Additional tax may apply if you are a high-income earner, you don't provide your TFN or you exceed the cap. Ask your employer to deduct contributions from your after-tax pay, or make contributions directly yourself by cheque, EFT, BPAY or direct debit from your bank account. You then need to tell us that you intend to claim the contributions as a tax deduction. Either as a regular deduction by direct debit OR from your pay every pay cycle OR as one-off contributions at any time We deduct 15% contributions tax when we receive notice that you intend to claim a tax deduction for these Additional tax may apply if you are a high-income earner or you exceed the cap. We will not be able to accept your contributions if we do not hold your TFN. What is the limit? What if you exceed the limit? Fees $5,000 a year. This is the cap on the sum of all before-tax contributions you make or receive (which includes SG, salary sacrifice and personal deductible contributions) across all your super accounts. Any excess contributions will be taxed at your marginal tax rate (plus Medicare and other levies). There will also be a charge to cover the cost of collecting this tax later than normal tax. If you exceed the cap, you can apply to the ATO to have up to 85% of the excess contributions returned so they don't count towards your non-concessional contributions cap. We don t charge any additional fees for processing salary sacrifice or personal deductible contributions, but check with your payroll office about any limitations on the amount of salary you can sacrifice and any fees that may be payable. Also make sure that your salary sacrifice arrangement can be amended or stopped at any time. Who can make before-tax contributions? Under age 65 Your employer can make salary sacrifice contributions on your behalf. Age 65 74 1 Your employer can make salary sacrifice contributions on your behalf if you meet the work test. The work test requires you to work at least 40 hours in any consecutive 30-day period during the financial year in which the contributions are made. Age 75 and over Your employer cannot make salary sacrifice contributions on your behalf. Under age 65 You can make personal deductible contributions to the fund. However, if you are under 18, you must be employed or running a business to be eligible to claim a tax deduction for your personal Age 65 74 1 You can make personal deductible contributions if you meet the work test. Age 75 and over You cannot make personal deductible contributions to the fund. 1 We must hold your TFN before we can accept your personal Contributions must be received on or before the 8th day after the end of the month in which you turn 75. Module.6 Contributing Adding to your super
Salary sacrifice Personal deductible 1 Advantages Tax effective. Contributions are taxed at 15% rather than at your marginal tax rate, which for most people is higher than 15%. You don t have to wait to get the tax benefit, as the contributions are paid to super before tax is deducted from your wage. Convenient. Contributions are automatically deducted from your pre-tax salary every pay cycle. Other than providing your payroll office with your instructions, there is no additional paperwork. Low income superannuation tax offset. If you are a low-income earner (less than $37,000 a year), you may qualify for a government contribution which offsets the 15% tax on your salary sacrifice Tax effective. Contributions are taxed at 15% rather than at your marginal tax rate, which for most people is higher than 15%. Ensures your SG payments are not reduced. If you make personal deductible contributions, your employer can t reduce your salary for SG purposes and, therefore, the SG contributions paid on your behalf. Convenient. You can make the contributions at the times that best suit you during the year. Low income superannuation tax offset. If you are a low-income earner (less than $37,000 a year), you may qualify for a government contribution which offsets the 15% tax on your personal deductible Disadvantages May not be available. Not all employers offer salary sacrifice so check with your payroll office that it s available. Could reduce your SG payments. Your employer might calculate SG contributions on your salary after salary sacrifice contributions are deducted, which will reduce the amount of SG contributions you receive. Some employers might use your salary sacrifice contributions to meet their SG obligations, so ask your pay office to explain the impact salary sacrificing will have on your overall salary package. Not counted for the co-contribution. Before-tax contributions do not count towards the government co-contribution. Additional paperwork. You must complete the notice of intention to claim a deduction, and you must include additional information in your tax return. And you generally won t see the tax saving until you submit your income tax return. Not counted for the co-contribution. Before-tax contributions do not count towards the government co-contribution. Think about salary sacrificing any pay rises, tax cuts or bonuses into your super fund firststatesuper.com.au Call 1300 650 873 Email enquiries@firststatesuper.com.au 3
After-tax contributions After-tax contributions are paid into your super fund from your net income (i.e. after income tax is deducted) and are not claimed as a tax deduction. After-tax contributions include: 55regular or one-off contributions from your net pay 55contributions made to your account by your spouse. Here s a summary of the main features of after-tax How do you arrange these contributions? When are contributions paid? How are these contributions taxed? What is the limit? If you exceed the limit No set up is required, other than certain forms to tell us when you have made a contribution (see What forms do you need to complete? on page 6). NOTE: We cannot accept after-tax contributions unless you have provided your tax file number. Either as a regular direct debit deduction OR from your pay every pay cycle OR as one-off contributions at any time. These are after-tax contributions so no tax is payable when we receive your contribution. The after-tax contributions caps are: 55$100,000 a year; or 55if you are under age 65 at any time during the financial year, up to $300,000 in total over a threeyear period. This is known as the bring forward rule and it allows you to make much larger one-off contributions (up to $300,000) at any time over a three-year period. Once you turn 65, you can no longer use the bring forward rule. You must also satisfy the work test, which requires you to work at least 40 hours in any consecutive 30-day period during the financial year. If the total value of all your superannuation and income stream accounts is more than the transfer balance cap of $1.6 million for 017-18 (indexed) at the start of the financial year, then your cap is nil. These caps apply in total across all your super funds; they are not a cap for each fund. For cap purposes, after-tax contributions also include any before-tax contributions that exceed the before-tax contributions cap (and are not refunded). The following are excluded from the cap: 55contributions made from certain personal injury payments 55government contributions 55contributions from the sale of certain small business assets less than $1.445 million for 017-18. You can apply to the ATO to withdraw the excess amount from your super fund, together with 85% of the associated earnings. The earnings will be taxed at your marginal tax rate, (plus Medicare and other levies), less a 15% offset for the tax paid on earnings within the fund. If you do not withdraw the excess contributions, they will be subject to tax at the top marginal tax rate (plus Medicare and other levies). Who can make aftertax contributions? NOTE: We must hold your TFN before we can accept your after-tax Under 65 No restriction 65 but less than 70 years You must satisfy the work test 70 but less than 75 years 3 Personal contributions: You must satisfy the work test Contributions from your spouse: Cannot be accepted 75 years or more Cannot be accepted Transitional arrangements apply if you have brought forward the cap in the 015-16 or 016-17 financial years. Superannuation law limits the amount you can bring forward if your total superannuation balance (across all funds) exceeds $1.4 million for 017-18 (subject to indexation). 3 Contributions must be received on or before the 8th day after the end of the month in which you turn 75. firststatesuper.com.au Call 1300 650 873 Email enquiries@firststatesuper.com.au 4
Fact Sheet Adding to your super Comparing before-tax and after-tax contributions Joe is a teacher earning $65,000 a year. He wants to boost his retirement savings but he s not sure how much he can afford and whether he should make before-tax or after-tax Joe s financial planner calculates that Joe can afford to put an extra $5,000 a year into super. The calculations show that before-tax contributions give Joe the best outcome. This is because a $5,000 before-tax contribution reduces Joe s taxable salary by this amount, which gives him an extra $1,65 in his after-tax pay. Although contributions tax of 15% is deducted from Joe s contribution (giving him an actual super contribution of $4,50), before-tax contributions either as salary sacrifice or personal deductible contributions still give him the best outcome. In addition, the investment earnings from his super will be taxed at a maximum of 15%. Investment earnings outside super will be taxed at Joe s marginal tax rate of 3.5% (plus Medicare and other levies). Before-tax After-tax Salary sacrifice Personal deductible Gross salary $65,000 $65,000 $65,000 Less before-tax contribution ($5,000) N/A N/A Less tax deductible contribution (made after-tax) N/A ($5,000) N/A Taxable income $60,000 $60,000 $65,000 Less income tax* ($11,047) ($11,047) ($1,67) Less after-tax contribution N/A N/A ($5,000) Net salary $48,953 $48,953 $47,38 Net super contribution $4,50 $4,50 $5,000 End position (salary plus super) $53,03 $53,03 $5,38 * excludes Medicare and other levies and low income tax offset. If the before-tax contributions are made as personal deductible contributions, tax of $1,67 will be withheld from Joe s pay, and the $1,65 tax deduction may only be realised once Joe lodges his tax return. NOTE: Your employer may calculate SG contributions on your salary after salary sacrificing, which in this case would result in SG contributions of $5,700 ($60,000 x 9.5%), not $6,175 ($65,000 x 9.5%). This example is illustrative only and does not guarantee an outcome. It is based on current rates and legislation, which are subject to change. Don t forget! If you are thinking about making salary sacrifice contributions, ask your pay office about the impact that salary sacrificing might have on your SG payments. Don t forget to keep a close eye on your contributions so you don t accidentally exceed the contributions caps 5
What forms do you need to complete? All forms are on our website at firststatesuper.com.au/forms Contribution type Employer SG contribution Salary sacrifice contributions After-tax contribution by payroll deduction Personal after-tax contribution by cheque or EFT Personal after-tax contribution via BPAY Personal after-tax contribution by direct debit Transfer money from another super fund Spouse after-tax contribution Spouse split contribution Form or information required If your employer s compulsory SG contributions are not going to First State Super but you would like them to, you should complete the Superannuation standard choice form and give it to your employer. Complete a Contributions by payroll deduction form and give it to your payroll manager. Complete a Contributions by payroll deduction form and give it to your payroll manager. Complete a Personal contributions by cheque or EFT, or contributions for your spouse or child form and attach a cheque or arrange a funds transfer. You will need the BPAY Biller Code and your Customer Reference Number. Once your account has been set up, you can find these by accessing your account online, or calling us. Complete a Direct debit request form or log in to your account and set up a direct debit online once your account has been established. You can transfer balances from other super funds to your First State Super account by completing a Request to transfer benefits to First State Super form. Your spouse can make after-tax contributions to your account by completing a Personal contributions by cheque or EFT, or contributions for your spouse or child form and attaching a cheque, or by completing a Direct debit request form. Alternatively, you can log in to your account and your spouse can set up a direct debit online once your account has been established. or obtain the BPAY Biller Code and your unique Customer Reference Number for spouse contributions then make contributions for you by BPAY. If your spouse is a member of First State Super, they can apply to split their before-tax (employer SG, salary sacrifice or personal deductible) contributions with you by completing an Application to split superannuation contributions form. If your spouse is not a member, they should contact their fund. The split contribution will not count towards your before-tax contributions cap. Registered to BPAY Pty Ltd ABN 69 079 137 518 If you want to claim a tax deduction for personal after-tax contributions, you must let us know by completing a Notice of intent to claim or vary a deduction for personal super contributions (ATO form NAT 7111). This is an ATO form that you must give to us by the earlier of: 55the date you lodge your income tax return for the year that the deduction is claimed 55the end of the next financial year 55the date you withdraw, split or start an income stream with the We will confirm that we have received your notice and send you the paperwork you need to complete your tax return. We re here to help! Super can be quite complicated and sometimes you just want to know that you re making the right decisions. Because the right decisions about your super can make a real difference to your financial future. So if you ve got any questions, or you just want the comfort of knowing you re on the right track, why not give us a call? We can answer simple questions over the phone, or if your situation is more complex, we can prepare a full financial plan. It s all up to you, no obligation, just call 1300 650 873. Financial planning advice is provided by First State Super Financial Services Pty Ltd ABN 37 096 45 318, AFSL 40019. Service and advice Phone 1300 650 873 Fax 1300 7 07 Email enquiries@firststatesuper.com.au Web firststatesuper.com.au Post PO Box 19 Wollongong NSW 500 This is general information only and does not take into account your specific objectives, financial situation or needs. You should consider the Member Booklet (Product Disclosure Statement) for the product you hold or intend holding before making any decisions. Call us on 1300 650 873 for a copy, free of charge, or visit firststatesuper.com.au. FSS Trustee Corporation (FTC) ABN 11 118 0 67, AFSL 93340, the trustee of the First State Superannuation Scheme (First State Super) ABN 53 6 460 365. M.6_ADDINGSUPER_09/17 Module.6 Contributing Adding to your super 6