Choosing between pre and post-tax contributions

By now you know why you should be contributing to your super. The next question is: pre-tax or post-tax? In the years before you retire, how you contribute to your super can be just as important as how much you contribute.

Important notice:
On 15 September 2016, the Government announced that the $500,000 lifetime post-tax contribution cap that was proposed in the May 2016 Federal Budget will not proceed. The annual post-tax contribution cap will continue, however the cap will reduce from the existing amount of $180,000 per year to $100,000 per year from 1 July 2017.  Individuals under age 65 will continue to be able to bring forward three years’ worth of post-tax contributions ($300,000 over three years for those under age 65).  Please note that these further proposals have not yet been legislated.  We will update this information as the proposed reforms pass through the parliamentary process.

Pre-tax contributions

Pre-tax contributions, also known as concessional contributions, are any contributions made by your employer (including employer Superannuation Guarantee (SG), salary sacrifice contributions and employer paid insurance premiums) and personal contributions for which you have claimed a tax deduction.

Making pre-tax contributions to your super can result in significant tax savings. Whether you will benefit from pre-tax contributions will depend on factors such as your marginal tax rate and personal circumstances.

Pre-tax contributions and take-home pay

The main advantage of pre-tax contributions is the potential to reduce your taxable income. Rather than taking this money as salary and paying marginal tax rates, the money you contribute to super on a pre-tax basis is taxed at 15%* (which may be considerably lower than your marginal tax rate). For people on higher incomes, this can boost super savings with little difference in take home pay, as the following example demonstrates:

Kate’s gross income is $75,000 a year. She decides to make pre-tax contributions to her super of $150 a fortnight ($3,900 a year).

  Additional pre-tax contributions No additional contributions to super
Gross income $75,000 $75,000
Less pre-tax contribution $3,900 $0
Taxable income $71,100 $75,000
Less income tax
(excluding the Medicare levy)
$14,654 $15,922
Take home pay $56,446 $59,078
Additional super savings
(after contributions tax of 15%)
$3,315 $0

Kate’s take home pay is now only $101 less per fortnight than before she contributed – but her super savings will be boosted by $3,315 for the year (after contributions tax of 15%).

Use our Pre-tax vs Post-tax contributions calculator to help work out the effect of contributions on your take home pay.

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* This tax is 30% for members with eligible income over $300,000

Post-tax contributions

Post-tax contributions, also known as non-concessional contributions, include any contributions made from your post-tax salary. If you are a lower income earner or you have a non-working spouse, you may be better off making post-tax contributions. You will be able to take advantage of the Government co-contribution scheme and spouse tax offset, which only apply to post-tax contributions.

Access the spouse tax offset

If you make post-tax contributions on behalf of your eligible spouse you may be eligible for a tax offset of $540. You can claim an 18% tax offset on the first $3,000 of contributions you make each financial year on your spouse’s behalf, provided that their income is $10,800 or less. A partial offset is available if your partner's income is over $10,800 but less than $13,800 a year.

So, by redirecting some contributions, you may be able to access the offset and further boost your savings, while increasing your spouse's super.

Use our Spouse tax offset calculator to see if you would be eligible for a tax offset.

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 more information is available in our factsheet Superfacts on Spouse contributions.

Government co-contributions scheme

The Government’s co-contribution scheme means you may be eligible to receive a Government co-contribution of up to $500 a year. To be eligible you must earn less than $50,454 pa. Full details of the co-contribution scheme is available on the Types of contributions you can make page.

Low income super contribution

The Government may pay a superannuation contribution of up to $500 each financial year for individuals earning less than $37,000 p.a. This measure effectively refunds the contributions tax payable on low-income earner's concessional (pre-tax) contributions.

Use our Government co-contribution calculator to see if you are eligible.

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 more information is available in our factsheet Superfacts on co-contributions.

Combine co-contributions and the spouse tax offset

If you are a couple approaching retirement and one person is a full-time salary earner and the other a part-time worker, you may be able to boost your combined super savings by combining co-contributions with the spouse tax offset.

This is how it can work: one spouse, generally the full-time worker on a higher salary, makes contributions into their spouse's super. The other spouse makes a personal post-tax contribution to their own super. The couple may then be eligible to receive a spouse tax offset (up to $540) and up to the maximum $500 co-contribution.

 more information is available in our factsheet Superfacts on co-contributions
 use our Government co-contribution calculator to see if you would be eligible
 more information is available in our factsheet Superfacts on Spouse contributions
 use our Spouse tax offset calculator to see if you would be eligible for a tax offset.

Contribution limits

Contribution limits apply to both pre-tax and post-tax contributions. Post-tax contributions have higher limits than pre-tax contributions, which may be of benefit if you are getting closer to retirement age and want to dramatically increase the amount of super you can access tax-free on retirement.

 more information is available on contribution limits for accumulation members