Click on the headings below to get your head around superannuation.

What is superannuation?

Superannuation is a tax-advantaged investment structure

Superannuation is the Government endorsed way of saving for your retirement; it's an opportunity to accumulate significant savings for the future. Through concessional tax treatment, superannuation gives you a tax advantage that doesn't apply to other investments. This means superannuation can potentially leave you with more money for retirement when compared to your alternatives.

Superannuation is a product most of us use to save for our retirement; it's an opportunity to accumulate significant savings for the future, often with the assistance of our employer.

When you're thinking about superannuation try not to get side-tracked by its complexities, focus instead on what it can do for you.

Superannuation is basically a managed fund. In return for special tax advantages that other managed funds don't have, your superannuation is usually not available to you until you retire (usually between the ages of 55 - 65).

Who can contribute to superannuation?

If you are:

  • less than 65 years old
  • 65 to 74 and have worked at least 40 hours in a period of not more than 30 days in that financial year.

You can also make contributions on behalf of your spouse until they are age 70 if your spouse is not working or earns less than a small income.

Employer contributions

If you are employed, your employer should be contributing some money into superannuation on your behalf. These compulsory contributions are called Superannuation Guarantee Contributions (SG). The SG is a percentage of your gross (before tax) income. The percentage amount from 1 July 2002 is 9%.

In addition, you may be able to increase the amount that your employer contributes to your superannuation account through 'salary sacrifice'.

Personal contributions

Many people also decide to "top up" (increase) their contributions to help their superannuation to grow even faster. You can do this by making extra contributions to your employer's superannuation fund or your own personal superannuation fund.

Personal superannuation contributions are generally made with after tax dollars. However, where a person qualifies as self employed they may be able to claim a tax deduction for the contribution.

Spouse contributions

Making contributions for your spouse will enable you both to take advantage of the tax concessions in superannuation. It will also allow both partners to use the retirement concessions on income streams, such as two tax-free thresholds. There are no limitations to the amount of spouse contributions you can make.

In order to make spouse contributions the following conditions must be met:

  • Both spouses must be Australian residents for taxation purposes;
  • The recipient spouse must be younger than 70;

If you make a spouse contribution into superannuation on behalf of your spouse, you may be able to receive a rebate for the contributions.

Child contributions

Family and friends are able to make contributions on behalf of a child up to $3,000 every three years. Whilst there are no specific tax breaks for child contributions, making these contributions will allow the full effect of compounding to grow for many decades by the time the child retires.

Baby bonus

If you have received a "Baby Bonus" for your first child born after 1 July 2001 then you are able to contribute to superannuation within 12 months of receipt of the Bonus. The amount you can contribute is not restricted to the amount of the Bonus. This is an excellent opportunity to contribute to superannuation if you are out of the workforce to look after children.

What tax applies to superannuation?

Let's look at the tax that applies at the three main stages:

When you contribute

At the point of investing your money in superannuation, any contributions made from your after-tax income (including spouse contributions) are not taxed. These are referred to as Undeducted contributions.

If you're self-employed, and claiming a tax deduction for the contributions, or, if your employer is claiming a deduction for contributing to superannuation for you, a maximum of 15% tax must be paid on these contributions.

While your money's invested

Once your money is invested in superannuation, the fund pays a maximum of 15% tax on any income and profits it makes on its investments. This is probably a much lower rate of tax than you pay on any income and profits from investments you have outside superannuation.

When you withdraw your money

The tax you pay on withdrawal depends upon factors such as your age, when you started work or contributing to superannuation and the type of contributions that you made.

For example:

  • Undeducted contributions (your own contributions after July 1983 for which you haven't claimed a tax deduction) are repaid to you tax free.
  • Post June-83 taxed element (the balance of your benefit, excluding undeducted contributions) is tax free providing you cash out after 60.

Disclaimer - The information contained on this website is given in good faith and has been prepared from information believed to be accurate and reliable. This information is of a general nature only. Mortgage One and its related entities, nor any of their employees, officers or directors gives any warranty of accuracy or reliability nor accepts any responsibility arising in any other way including by reason of negligence for errors or omissions herein. All assumptions and examples are based on the continuance of present laws and Mortgage One’s interpretation of them. Mortgage One does not undertake to notify recipients of changes in the law or its interpretation. This guide is not designed to be a substitute for specific financial or investment advice or recommendations and should not be relied upon as such. Please contact us for advice on your specific needs