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Superannuation rules, Superannuation is a percentage of your income that is set aside for you to access after you reach retirement. Strict superannuation rules and compulsory fund contributions have put Australians’ retirement savings ahead of people in many other counties that have no mandatory retirement contributions.

Superannuation is fairly straightforward for most of us who earn a wage or salary because it comes out of our pay, and that’s the last we think about it.

However, once you start digging deeper into superannuation and tax rules as well as trying to work out if you’ll have enough when you retire, it becomes pretty complicated.

Here is some important information that will teach you more about superannuation and help you better prepare for your retirement. Even if your retirement is decades away it is always a good idea to start saving as early as possible to ensure that you have the luxury of living the desired lifestyle you would wish to live once you reach retirement.

How much super is your employer required to pay you?

It is a requirement for every employer to pay a minimum of 9.5 percent of their employee’s total earnings into their superannuation account. This is known as the Super Guarantee (SG). For example, if your ordinary time earnings for the year are $50,000, your employer must pay $4,500 into your super account.

The minimum contribution is set to increase again in 2021 to 10 percent, this will be followed by an increase of 0.5 percent each year after this year until it reaches a target of 12 percent in 2025.

The 9.5 percent is calculated from your normal pay or salary plus all allowances, commissions and leave loading. This doesn’t include dividends or performance-related bonuses.

Superannuation Criteria

In order to be eligible to receive employer superannuation contributions, you must be under the age of 70, working either on a full-time, part-time or casual basis and paid over $450 before tax per calendar month. If you’re under the age of 18, to be eligible for the employer contributions you also have to be working more than 30 hours a week.

Superannuation standards, rules and compliance

All superannuation funds have to be complying and must meet legal standards. If you want confirmation that your fund is a ‘complying’ super fund, you can go to the federal government’s free register of complying funds called ‘Super Fund Lookup’.

Superannuation for Self-Employed Australians

If you are self-employed, you can decide if you want to join and contribute to a fund. Most self-employed people can claim a full tax deduction for contributions they make to their super until the age of 75.

Superannuation Rules, What happens to my super contributions?

Money in your superannuation account is invested by your super fund. Most super funds offer a variety of investment options that may include shares, currency, property and more complex investment products. Choosing the investment options, you should consult the super provider and or get expert advice.

The Australian Tax Office (ATO) recommends that you should check your superannuation situation each year at the same time as you do your tax.

 Superannuation Contribution Rules and Limits

You can’t put all of your extra money into superannuation. The ATO has a limit on both concessional (before tax) contributions and non-concessional after-tax contributions.

‘Before-tax’ contributions

Concessional contributions are pre-tax contributions made to your superannuation fund.

They include both your employers required 9.5 percent contribution, plus any additional contributions you make by pre-tax salary sacrifice arrangements with your employer.

Most people are allowed to make pre-tax contributions of $25,000 each year.

‘Concessional contributions’ are taxed at the rate of 15 percent. This is much lower than the tax rate most of us pay to the ATO on our income. The tax is handled by your super fund. They usually subtract this tax amount from your super account and you’ll see this on your super statement.

Superannuation Rules, ‘After-tax’ contributions (non-concessional contributions)

Non-concessional contributions are post-tax contributions you make to your super fund.

However, the Australian Tax Office (ATO) has placed restrictions on how much you can contribute each financial year.

At the present time, the majority of Australians depending on your age can make a non-concessional contribution of up to $100,000.

Above the limit, you have to pay even more tax on this money. Currently, above cap, non-concessional contributions are taxed at 47 percent.

Despite the limits that have been put in place, after-tax contributions can really boost your super balance, particularly now that you might be able to claim a deduction for these contributions on your tax return.

If you want to claim this deduction on your tax return you must first tick of these two items:

  1. Told your superannuation fund via a “Notice of intent to claim” that you intend to claim your after-tax contributions, And
  2. Received acknowledgement back from your superannuation fund.

However, it is important to remember that if you claim an after-tax superannuation contribution on your tax return it is effectively converted to a ‘before tax’ concessional contribution and is included in your $25,000 yearly limit.