How Does Superannuation Work In Australia?

couple discussing finance on laptop

What is Superannuation?

A superannuation, also called “super” or “super fund’ is an account where you put money during the years you are working to serve as your income stream after you retire.

Your super fund is vital to your future because the average Australian will have approximately 20 years past retirement to finance. Older Australians would struggle to make ends meet without a well-planned super since the Age Pension provides the bare necessities for those who rely on the program.

What is the Superannuation Guarantee?

Australian workers who are at least 18 years old have the benefit of the Superannuation Guarantee or SG. This means if you are considered an employee for tax purposes, your employer is obligated to contribute 11 per cent of your earnings to your super fund. The basis for the amount includes your regular wage plus bonuses, overtime, and paid time off.

Additionally, the SG payment is your right whether you are a full-time, part-time, or casual worker. Temporary residents of Australia are also entitled to receive SG payments. In the past, employees were required to earn a minimum of $450.00 a month to receive employer contributions. However, the May 2021 Federal Budget included a change eliminating the $450.00 per month threshold requirement.

If you are under the age of 18 or you are classified as a private or domestic worker (such as a nanny), you must work more than 30 hours per week for your employer to qualify for SG payments.

Others Who Are Not Guaranteed Super Contributions:

  • Non-Australian residents paid to do work outside Australia
  • Australian resident who is paid by a non-resident employer for work done outside the country
  • A senior foreign executive on certain visas
  • A temporary worker in Australia for an overseas employer who is covered by super provisions in a bilateral social security agreement.

retiring couple planning finances

What are the Types of Contributions That Can Be Made to a Super?

The five most common kinds of contributions to your super fund, aside from the money your employer contributes, are:

    • Concessional Contributions – Australians who are under the age of 75 can make concessional contributions to their super from their pretax income. One of the simplest ways to do this is through the salary sacrifice process. For this type of contribution, you determine the amount of your salary to be placed into your super. The money is contributed before taxes and is not included as a part of your take-home pay.

      Employees often prefer this automatic method of contributing because they do not need to think about making the contribution or spending the money right away.

      Concessional contributions have caps to limit how much you can contribute. Typically, this amount is $27,500 unless you are eligible to carry over unused portions of concession caps from previous years.

    • Non-Concessional Contributions – These are contributions made after taxes are paid on your earnings, money put into your super account by a spouse, or concessional contributions you have made that exceed the cap for contributions.
    • Spouse Contributions – If your spouse or partner is considered to be a low-income earner, they may be able to claim up to $540 as a tax offset under certain conditions, provided they make a non-concessional contribution to your superannuation.
    • Government Co-Contributions – The Australian government is able to make a superannuation co-contribution to your super account. The maximum contribution is $500. To receive this, you must be a low or middle-income earner and make a personal after-tax contribution to your super fund. Other eligibility requirements include:
      • You must be under 71 years old when the financial year ends
      • Earn no more than $56,112 before taxes
      • Lodge your tax return for that year
      • More than 10% of your total income must come from employment-related activities.
      • Make an eligible post-tax contribution to your super account during the financial year.
    • Downsizer Contributions – If you sell your family home and are aged 55 or older, you can make a considerable contribution to your super with your profits. The contribution will not count towards your cap. An individual can contribute $300,000; a married couple’s upper limit is $600,000.

couple working on laptop

Is There an Age Limit for Superannuation Contributions?

      • If you are between the ages of 65 and 74 and are still working, the rules for your super fund contributions by your employer remain the same.
      • If you are between the ages of 67 and 74 and would like to claim a tax deduction on your contribution to your super fund, you will need to pass what is called the work test. The work test is a matter of proving you are (or were) gainfully employed for at least 40 hours during a consecutive 30-day period in the financial year in which the contributions are made. It is worth noting that the test is annual, so passing it once means you are able to contribute to your super for the whole fiscal year.
      • Those aged 67-74 will not need to pass the work test if the contributions made are non-concessional.
      • Once you reach age 75,your superannuation fund can still accept contributions from downsizing as well as those made by your employer.
      • In the 28 days after the end of the month in which you turn 75 years old, your fund can accept the following types of voluntary contributions:
        • Voluntary employer contributions
        • Money paid by your employer to your super funds, such as administration fees and insurance premiums.
        • Personal contributions
        • Spouse contributions

How Contributions Are Taxed in Superannuation

      • The compulsory contributions paid to your super fund by your employer are taxed at a rate of 15 per cent.
      • Your concessional (salary-sacrificed) contributions are also taxed at 15 per cent.

However, there are exceptions to this:

      • If your income is $37,000 a year or less, the Low-Income Super Tax Offset (LISTO) pays the tax back into your super fund.
      • If your income and super contributions total $250,000 or more, you must pay Division 293 tax. This is a 15 per cent tax additional to other applicable taxes.
      • If you make non-concessional contributions (the income has already been taxed), you will not pay any contributions tax.

Other exceptions may apply. Because every case is unique, the smartest thing to do is engage a professional who is well-versed with the tax system that applies to superannuation.

Withdrawing from a Super Fund

In most cases, you must reach the preservation age of between 55 and 60 and retire to access your super fund. However, there are a few exceptions to this, and you may be able to access your super if you meet one of the following eligibility requirements, which include,

      • Suffer with a confirmed terminal illness
      • Have less than $200 in your super fund
      • Be a temporary resident
      • Meet compassionate grounds
      • Be in a state of severe financial hardship

The Australian Government defines severe financial hardship as meeting these conditions:

      • You are unable to pay for essential family living costs
      • You have received income support payments for 26 weeks without any gaps

Taking steps to ensure your super will support you in the future is worthwhile at any age. Do not hesitate to contact us at Grace Life and Wealth to learn more about your super fund. Our experts have assisted hundreds of clients of all ages as they plan for their future by making the most of their superannuation. It is never too soon to take control of your superannuation. Making wise choices regarding your super will help you in the long run. The future is closer than you know.


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