Although there are four ways you can contribute to super, the ATO only recognises two tax categories:
- Concessional (before-tax) contributions
- Non-concessional (after-tax) contributions
The four methods simply determine who makes the payment and who receives the tax deduction, and when the tax is paid.
| Method |
Who pays the money? |
Tax category |
| Employer Super Guarantee (SG) |
Employer |
Concessional |
| Salary sacrifice |
Employer |
Concessional |
| Personal deductible contribution |
You |
Concessional |
| Personal after-tax contribution |
You |
Non-concessional |
Comparison of the four methods
Assume a $12,000 contribution.
| Method |
Who transfers the money? |
Who claims a tax deduction? |
15% contributions tax? |
Net Deposit |
| Employer Super Guarantee |
Employer |
Employer |
Yes |
$10,200 |
| Salary sacrifice |
Employer |
Employer |
Yes |
$10,200 |
| Personal concessional contribution |
You |
You |
Yes |
$10,200 |
| Personal non-concessional contribution |
You |
Nobody (already taxed) |
No |
$12,000 |
Method 1 – Employer Superannuation Guarantee (SG)
Your employer is required to contribute the legislated Superannuation Guarantee amount into your super fund. Most employees cannot choose to receive this money as salary instead (although many business owners have more flexibility over how they pay themselves).
Assume the contribution is $12,000.
If your marginal tax rate is 32%
| Method |
Your bank account |
Your super account |
Total tax paid |
When is the tax paid? |
| Take as salary |
+$8,160 |
$0 |
-$3,840 |
PAYG withholding when salary is paid. |
| Employer Super Guarantee (APRA fund) |
$0 |
+$10,200 |
-$1,800 |
Contributions tax is deducted by the super fund immediately after the contribution is received. |
| Employer Super Guarantee (SMSF) |
$0 |
+$10,200 |
-$1,800 |
The tax liability arises immediately and paid either quarterly or when you do your tax return. |
Result: Compared with taking the money as salary, $2,040 less tax is paid.
If your marginal tax rate is 47%
| Method |
Your bank account |
Your super account |
Total tax paid |
When is the tax paid? |
| Take as salary |
+$6,360 |
$0 |
-$5,640 |
PAYG withholding when salary is paid. |
| Employer Super Guarantee (APRA fund) |
$0 |
+$10,200 |
-$1,800 |
Contributions tax is deducted immediately by the super fund. |
| Employer Super Guarantee (SMSF) |
$0 |
+$10,200 |
-$1,800 |
The tax liability arises immediately and paid either quarterly or when you do your tax return. |
Result: Compared with taking the money as salary, $3,840 less tax is paid.
Method 2 – Salary Sacrifice
Salary sacrifice is an arrangement where you ask your employer to pay part of your salary directly into your super fund instead of paying it to you as wages.
Assume the salary sacrifice amount is $12,000.
If your marginal tax rate is 32%
| Method |
Your bank account |
Your super account |
Total tax paid |
When is the tax paid? |
| Receive as salary |
+$8,160 |
$0 |
-$3,840 |
PAYG withholding when salary is paid. |
| Salary sacrifice (APRA fund) |
$0 |
+$10,200 |
-$1,800 |
Contributions tax is deducted immediately by the super fund. |
| Salary sacrifice (SMSF) |
$0 |
+$10,200 |
-$1,800 |
The tax liability arises immediately and paid either quarterly or when you do your tax return. |
Result: Compared with taking the money as salary, $2,040 less tax is paid.
If your marginal tax rate is 47%
| Method |
Your bank account |
Your super account |
Total tax paid |
When is the tax paid? |
| Receive as salary |
+$6,360 |
$0 |
-$5,640 |
PAYG withholding when salary is paid. |
| Salary sacrifice (APRA fund) |
$0 |
+$10,200 |
-$1,800 |
Contributions tax is deducted immediately by the super fund. |
| Salary sacrifice (SMSF) |
$0 |
+$10,200 |
-$1,800 |
The tax liability arises immediately and paid either quarterly or when you do your tax return. |
Result: Compared with taking the money as salary, $3,840 less tax is paid.
Method 3 – Personal Concessional Contribution
A personal concessional contribution is money that you transfer from your own bank account into super and later claim as a tax deduction by lodging a Notice of Intent to Claim a Deduction.
Assume you contribute $12,000.
If your marginal tax rate is 32%
| Method |
Your bank account |
Your super account |
Total tax paid |
When is the tax paid? |
| Keep the money outside super |
$0 |
$0 |
$0 |
No contribution is made. |
| Personal concessional contribution (APRA fund) |
-$12,000
+$3,840 (tax refund)
= -$8,160 |
+$10,200 |
-$1,800 (super fund)
+$3,840 (tax refund)
= +$2,040 overall benefit |
The contribution is made immediately. The fund deducts 15% contributions tax immediately. The tax refund is received when your tax return is lodged. |
| Personal concessional contribution (SMSF) |
-$12,000
+$3,840 (tax refund)
= -$8,160 |
+$10,200 |
-$1,800 (SMSF)
+$3,840 (tax refund)
= +$2,040 overall benefit |
The SMSF incurs the tax liability immediately, pays quarterly or after the tax return. The tax refund is received when your tax return is lodged. |
Result: Although you initially pay the contribution from your own bank account, claiming a tax deduction means the overall tax cost is $2,040 lower than leaving the money outside super.
If your marginal tax rate is 47%
| Method |
Your bank account |
Your super account |
Total tax paid |
When is the tax paid? |
| Keep the money outside super |
$0 |
$0 |
$0 |
No contribution is made. |
| Personal concessional contribution (APRA fund) |
-$12,000
+$5,640 (tax refund)
= -$6,360 |
+$10,200 |
-$1,800 (super fund)
+$5,640 (tax refund)
= +$3,840 overall benefit |
The contribution is made immediately. The fund deducts 15% contributions tax immediately. The tax refund is received when your tax return is lodged. |
| Personal concessional contribution (SMSF) |
-$12,000
+$5,640 (tax refund)
= -$6,360 |
+$10,200 |
-$1,800 (SMSF)
+$5,640 (tax refund)
= +$3,840 overall benefit |
The SMSF incurs the tax liability immediately, pays quarterly or after the tax return. The tax refund is received when your tax return is lodged. |
Result: The tax deduction more than offsets the 15% contributions tax, producing an overall tax saving of $3,840.
Method 4 – Personal Non-Concessional Contribution
A personal non-concessional contribution is money that you contribute from your own bank account without claiming a tax deduction.
Because you receive no deduction, the contribution has already been taxed before it enters super.
Assume you contribute $12,000.
If your marginal tax rate is 32%
| Method |
Your bank account |
Your super account |
Total tax paid |
When is the tax paid? |
| Keep the money outside super |
$0 |
$0 |
$0 |
No contribution is made. |
| Personal non-concessional contribution (APRA fund) |
-$12,000 |
+$12,000 |
$0 |
The income tax was paid before the money reached your bank account. No contributions tax is deducted by the super fund. |
| Personal non-concessional contribution (SMSF) |
-$12,000 |
+$12,000 |
$0 |
The income tax was paid before the contribution was made. The SMSF pays no contributions tax. |
Result: No additional tax is paid when the contribution enters super because the money has already been taxed through the normal income tax system.
If your marginal tax rate is 47%
| Method |
Your bank account |
Your super account |
Total tax paid |
When is the tax paid? |
| Keep the money outside super |
$0 |
$0 |
$0 |
No contribution is made. |
| Personal non-concessional contribution (APRA fund) |
-$12,000 |
+$12,000 |
$0 |
The income tax was paid before the money reached your bank account. No contributions tax is deducted by the super fund. |
| Personal non-concessional contribution (SMSF) |
-$12,000 |
+$12,000 |
$0 |
The income tax was paid before the contribution was made. The SMSF pays no contributions tax. |
Result: There is no tax deduction and no contributions tax. The full contribution is invested because it has already been taxed before entering super.
Limitations
There are limits to how much you can put into superannuation each year and still receive these tax deductions.
The curse of transparency
Nucleus reports the amount received (i.e. $12,000) and then shows the tax deducted (-$1,800), whereas many superannuation funds simply report the net amount ($10,200).
We do understand that seeing the tax can be distressing for some clients!
The important point is that all superannuation funds deduct the 15% tax. Many choose not to show it.
