What is the superannuation guarantee?
Superannuation (super) is a long-term investment specifically to provide an income stream for Australians during retirement. Businesses are obliged to make super contributions on behalf of their employees to help them save for retirement.
A superannuation guarantee (SG) is the minimum amount employers must pay to an employee’s nominated superannuation retirement fund to avoid the super guarantee charge (SGC). The SG currently requires employers to pay 11% of an eligible employee’s ordinary time earnings (OTE), regardless of how much the employee makes.
OTE includes:
allowances (excluding expense allowance and on-call allowance)
bonuses
commissions
over-award payments
paid leave (excluding annual leave loading, parental leave and ancillary leave)
Employees can also choose to contribute additional earnings to their super fund, or salary sacrifice into their super, on top of the minimum contributions from their employer.
The SG will gradually increase to 12% by 1 July 2025.
What is super contributions tax?
Superannuation contributions tax is the amount of money the ATO deducts from super contributions to cover taxes.
The ATO taxes super contributions based on the type of contribution — whether it’s from before-tax income or after-tax income — and how much the employer or employee contributes.
Super contribution caps
Super contribution caps are the maximum amounts that can be contributed to a super fund every year before they become subject to additional taxes.
Concessional (pre-tax)
Concessional contributions are what the employer pays as SG and any other amounts the employee contributes up to the annual cap of $27,500.
They include contributions, such as:
employer SG payments (compulsory)
superannuation guarantee charge (SGC) shortfall amounts
insurance premiums and administration fees paid by the employer from an employee’s before tax income
salary sacrifice payments.
Concessional contributions are taxed in your super fund at a rate of 15%.
Non-concessional (after tax)
Non-concessional contributions are contributions that the employer or employee makes after taxes. These contributions aren't taxed in your super fund, as long as they don’t exceed the annual cap of $110,000. Deductions are not allowed for an employee in their individual tax return and the contributions are not included as assessable income.
Types of non-concessional contributions include:
a spouse’s contributions, except when the spouse is the employer
concessional contributions over the limit, which remain unwithdrawn from the super fund
contributions that exceed the limit for capital gains tax (CGT) lifetime cap amount
fund fees and life insurance premiums — in some instances
unclaimed personal contributions allowed as an income tax deduction.
Additional tax on super contributions
Division 293 tax is an additional tax on super contributions for individuals whose combined income and contributions exceed $250,000. Division 293 tax is 15% on top of the normal 15% concessional contributions tax rate, and may be payable on some or all of your super contributions.
The ATO will advise you of your Division 293 tax requirements in your notice of assessment when they have your income and contributions information for the financial year.
Excess contributions tax
For those who exceed their annual concessional and non-concessional caps, the ATO will apply an additional tax to the excess contributions.
For concessional contributions, the excess is included in your assessable income and taxed at your marginal tax rate. You may withdraw up to 85% of your excess contribution to help pay your income tax liability.
For exceeding the non-concessional super contributions cap, you may need to release your excess contributions and pay tax on your associated earnings at your marginal tax rate, including Medicare levy, or pay 47% tax on your entire excess non-concessional contributions.
Tax rates on super contributions
Concessional super contribution tax (earning less than $250,000)
The ATO taxes earnings on concessional super contributions at 15%.
Concessional super contribution tax (earning more than $250,000)
The ATO imposes an extra 15% tax for a total of 30% (Division 293) when combined earnings exceed $250,000.
Non-concessional super contribution tax
The ATO doesn’t tax non-concessional contributions as these contributions are made after-tax. However, if these contributions exceed the annual non-concessional contributions cap, they may be subject to the excess contribution tax.
What happens when an employer doesn’t pay the superannuation guarantee?
Employers that fail to make compulsory super contributions by the quarterly due date must pay the super guarantee charge.
This charge includes:
an administration fee
the superannuation guarantee shortfall amount
interest on the shortfall.
The ATO investigates an employer’s super guarantee compliance proactively or in response to an employee’s request. The ATO can inform all affected employees, if it finds that the employer hasn’t followed SG obligations. An employer that fails to meet its super guarantee obligations may face additional penalties from the ATO alongside the super guarantee charge.
After collecting the SGC, the ATO sends it to the affected employee’s super fund.
The ATO has a checklist to help you understand your super obligations. It’s worth going through it regularly to ensure you’re up to date with the latest rules.
There’s also a course on super contributions tax available on the ATO website.
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Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.
MYOB is not a registered entity pursuant to the Tax Agent Services Act 2009 (TASA) and therefore cannot provide taxation advice to clients. If you have a query concerning taxation, including filing your BAS return or annual tax statements, then you should consult with your accountant or other registered tax adviser.