How Australian super works
Three types of super contributions:
1. Super Guarantee (employer mandatory)
- 12% of ordinary time earnings from July 1, 2025 (rising from 11.5% prior)
- Counts toward concessional cap
- Employer pays directly to your super fund
- Quarterly minimum: $450 super per quarter eliminated as of July 2022
2. Concessional contributions (pre-tax)
- $30,000 annual cap 2025-26 (combined SG + salary sacrifice + personal deductible)
- Carry-forward allowed if total super balance under $500K (carry up to 5 prior years)
- 15% contributions tax on the contribution
- 15% earnings tax inside super
- Salary sacrifice: agreed reduction in pre-tax salary, redirected to super
- Personal deductible: contribute after-tax, claim deduction; same tax effect as salary sacrifice
3. Non-concessional contributions (after-tax)
- $120,000 annual cap 2025-26
- Bring-forward: 3 years cap can be brought forward = $360,000 lump-sum allowed
- No tax on contributions (already after-tax money)
- 15% earnings tax inside super
- Subject to total super balance test - cannot make non-concessional if balance >= $1.9M (2025-26)
| Tax inside super | Tax on super withdrawals | Preservation age |
|---|---|---|
| Contributions: 15% (concessional) or 0% (non-concessional) | Under preservation age: generally cannot withdraw | Born before July 1, 1960: 55 |
| Earnings: 15% (max) - but with franking credits often less | Preservation age (now 60) and retired: tax-free for those over 60 | Born July 1, 1960 - June 30, 1964: 56-59 |
| High-income earner Division 293 tax: extra 15% on contributions if total income + concessional > $250K | Preservation age and NOT retired: transition-to-retirement pension, tax-free up to caps | Born July 1, 1964+: 60 (this is most current workers) |
For those born after 1964: preservation age = 60 = same as super tax-free withdrawal age. Simpler.
Salary sacrifice + concessional cap maximization
Salary sacrifice is the most efficient way to grow super for most workers.
Mechanics:
1. Agree with employer to reduce gross salary by $X.
2. Employer pays $X to your super fund (PRE-TAX).
3. You receive smaller gross salary; smaller PAYG withheld.
4. Inside super: 15% contributions tax on the salary-sacrificed amount.
5. Net result: $X enters super at 15% tax vs $X enters bank at your marginal rate (up to 47%).
| Worked example - $100K salary worker | At $200K salary, top marginal 45% + 2% Medicare = 47% | Division 293 tax (high earners) | Carry-forward rule (since 2018-19) |
|---|---|---|---|
| SG: 12% = $12,000 | SG: 12% on first $260,280 = $31,234 (so SG alone exceeds cap; salary sacrifice not relevant) | If total income + concessional contributions > $250,000 | If total super balance < $500K at June 30 of prior year |
| Concessional cap remaining: $30,000 - $12,000 = $18,000 | Wait - actually SG cap is on ordinary time earnings, but concessional cap is annual | Extra 15% on the concessional contributions | Carry forward unused concessional cap from up to 5 prior years |
| Salary sacrifice $18,000 to maximize cap | High earners: SG fully utilizes $30K cap; salary sacrifice impossible without exceeding cap | Effectively: 30% total tax on contributions (15% + 15%) vs marginal personal rate | Useful for lower-balance investors with sudden income spike (e.g. inheritance, business sale) |
| New gross salary: $82,000 | Use non-concessional for high earners wanting more super | Still better than 47% marginal, but smaller saving than typical worker | Example: $200K balance + $50K cap carry-forward = make $80K concessional in one year ($30K current + $50K carryforward) |
| Tax on $82K (2024-25 Stage 3 rates): $14,388 (vs $19,888 on $100K) | |||
| Tax saved at marginal: $5,500 | |||
| 15% contributions tax on $18K SS: $2,700 | |||
| NET tax saving: $2,800/year |
| Item | Amount | Notes |
|---|---|---|
| Concessional cap (pre-tax) | $30,000 | SG + salary sacrifice + personal deductible |
| Non-concessional cap (after-tax) | $120,000 | $360K with bring-forward |
| Super Guarantee rate | 12% | From July 1, 2025 |
| Carry-forward concessional | Up to 5 prior years | If balance under $500K |
| Total super balance cap | $1.9M | For non-concessional eligibility |
| Preservation age | 60 (post-1964 birth) | When you can access super |
Non-concessional contributions + bring-forward
| Non-concessional contributions (after-tax money) are useful for | Mechanics | Worked example - inheritance | Total Super Balance ($1.9M cap) | Government co-contribution | Spouse contributions tax offset | Low-income super tax offset (LISTO) |
|---|---|---|---|---|---|---|
| Inheritances or one-time windfalls | Up to $120,000 annual cap 2025-26 | Receive $300K inheritance | If your total super balance at June 30 of prior year >= $1.9M | For 2025-26: income under $43,445 = 50c per $1 personal contribution | For non-working or low-income spouse (under $40K) | For incomes under $37,000 |
| Maximizing super beyond annual concessional cap | Bring-forward rule: 3 years of cap (i.e. $360K) can be used in single year | Contribute to non-concessional super (bring-forward) | NO non-concessional contributions allowed for 2025-26 | Phases out: $43,445 to $58,445 | Contributing spouse claims tax offset up to $540 ($3,000 contribution) | Refunds 15% contributions tax to your super |
| Pre-retirement lump-sum boost | Trigger bring-forward by contributing >$120K in one year | $300K enters super tax-free (no contribution tax) | Phased reduction approaching cap | Maximum co-contribution: $500 (on a $1,000 personal contribution) | Income phase-out | Automatic - no application needed |
| Total super balance under $1.9M | Then no further non-concessional for next 2 years | Earnings on $300K: 15% (vs marginal 47% in personal) | 100% return on your $1,000 contribution if income qualifies | Useful for income-splitting at retirement | Result: super contributions for low earners are effectively tax-free | |
| Saves $75K+ in tax over 20 years to retirement | Apply via tax return |
Stage 3 tax cuts + super impact
July 1, 2024 Stage 3 tax cuts (now applying through 2025-26):
2025-26 personal tax brackets
- 0%: $0 - $18,200 (tax-free threshold)
- 16%: $18,201 - $45,000
- 30%: $45,001 - $135,000
- 37%: $135,001 - $190,000
- 45%: $190,001+
Plus 2% Medicare Levy (most workers) and 1-1.5% Medicare Levy Surcharge (no private health insurance for high earners).
| Vs pre-Stage 3 brackets | Impact on super |
|---|---|
| 32.5% was 30% (cut) | Marginal rate cut from 32.5% to 30%: 17.5% gap between marginal and super tax rate |
| 37% bracket starts $135K (was $120K) | For middle-income earners ($45K-$135K): super still saves 17.5% on every dollar contributed |
| 45% bracket starts $190K (was $180K) | Still strong incentive to salary sacrifice |
| Tax-free threshold up to $18,200 |
Worked example - Stage 3 vs old:
Worker earning $80K:
- Old brackets (pre-2024): marginal 32.5% on $42K-$120K
- Stage 3 (2024-onward): marginal 30% on $45K-$135K
- Annual tax saved: $1,375 (Stage 3)
- Super salary sacrifice $20K:
- Tax saved at 30%: $6,000
- Less 15% super contributions tax: $3,000
- Net saving: $3,000
- Combined Stage 3 + super: $4,375 lower tax than pre-2024 super-only
For highest earners (over $190K)
- Stage 3 keeps marginal at 45%
- Plus 2% Medicare
- Plus 1.5% Medicare Levy Surcharge (if no private health for income above $144K)
- Total marginal: 48.5%
- Plus Division 293 on super: 30% effective
- Super still saves 18.5%/dollar - meaningful but smaller than mid-bracket
Concessional contribution cap unchanged at $30K (up from $27.5K in 2024-25) - rises every few years for inflation.
Common super mistakes
- Letting employer pay SG to ANY super fund without consolidating. End up with 3-5 different super funds each charging fees. Consolidate to one (your "stapled super").
- High-fee retail funds vs low-fee industry funds. AustralianSuper Member Direct: 0.06% admin + 0.50% Balanced fund = 0.56% total. Compare to retail fund at 1.5-2.5%. 1.5% drag over 30 years = lose 30% of retirement balance.
- Not nominating beneficiary. Death benefit can go through estate (delays + legal cost). Make a Binding Death Benefit Nomination - confirms recipient.
- Forgetting carry-forward concessional. Many under-$500K-balance workers do not realize they have multi-year cap.
- Excess contributions over caps. Triggers Division 293 (high earners) or excess concessional contributions tax (extra tax) or top-up tax on non-concessional.
- Skipping government co-contribution. Free $500 from government for low-income contributors.
- Putting super in "Balanced" default fund forever. Risk profile: balanced is 70/30 stocks/bonds typically. For under-40s, 90-100% equity wins long-term.
- Not claiming personal deductible contributions. Form NAT 71121 to your super fund within 30 days of submitting tax return.
- Forgetting transition-to-retirement (TTR) pension. From age 60, can drawdown super while still working. Tax-free withdrawals.
- Treating super as untouchable forever. Total Super Balance over $1.9M: can no longer receive non-concessional. Plan accumulation strategy.
Run the math for your situation
Use our 🇦🇺 Australia calculator to plug in your own numbers.