One key benefit of superannuation in Australia is that super contributions and investment returns are generally taxed at a flat rate of 15%. For many people, an investment in super could outperform an equivalent investment outside super, due to these tax benefits. The tax treatment for super contributions depends on what type of superannuation contribution they are and they fall into two broad categories:

• Concessional contributions can be claimed as a personal tax deduction which is taxed at 15% instead of your marginal rate subject to not exceeding an annual contribution cap. 
• Non-concessional contributions are generally contributions that are not tax deductible. These contributions are not taxed when they are made. Non-concessional contributions are also subject to annual contribution caps.
  

Investors should note that caps and restrictions apply to the amount of concessional and non-concessional contributions that can be made.  Penalty tax may apply if these caps are exceeded.

Within these two categories there are different types of contributions which are paid into superannuation:

Employer contributions
The requirement of the Superannuation Guarantee (administration) Act 1992 states that employers provide employees with a minimum level of superannuation. Generally your employer must pay 9% of your earnings into a super account on your behalf. This law applies to all working Australians aged between 18 and 70, except those earning less then $450 per month. Employer contributions are concessional contributions.

Personal contributions (non concessional contributions)
Formerly known as undeducted contributions, non-concessional contributions are after tax contributions made to your own super account for which it is not possible to claim an income tax deduction.

Salary sacrifice
An arrangement between you and your employer where you agree to reduce your pre-tax salary by a nominated amount to be contributed to your super fund instead. These non-concessional contributions are paid in pre taxed dollars which will often save you tax as contributions are taxed at 15% instead of your marginal tax rate. Please note that the concessional contribution cap includes both employer and salary sacrifice contributions.

Spouse contributions
This can also come under non concessional contributions and are made on behalf of an eligible spouse.

Superannuation co-contributions
If you make personal contributions and you earn within a maximum amount of income, the government may make a co-contribution to your superannuation account.


Contributions caps

The current concessional contribution allowable is up to $25,000 per financial year and includes employer contributions under the Superannuation Guarantee and any salary sacrifice arrangements. If you are aged 50 or over, there is a transitional arrangement in place for the 2009-10, 2010-11 and 2011-12 financial years of $50,000. The concessional cap applies to all your funds if you hold multiple super funds.

The non-concessional contribution cap of $150,000 per financial year applies to personal contributions for which you do not claim an income tax deduction. For people under 65 years of age, they can take advantage of the ‘bring-forward’ option and make non-concessional contributions of up to three times the cap $450,000) over a three year period.

When making any superannuation contribution you should consider the entry fee that your super fund may charge. Entry fees of 4%-5% on all contributions can be avoided with 2020 DIRECTINVEST through 100% entry fee rebate on all superannuation funds.