Superannuation is designed with a series of tax concessions to encourage us to save for our retirement. The tax benefits are generally realised at three different stages:
- When money goes into the fund,
- While it's invested, and
- When you withdraw it.
By understanding these concessions and maximising your contributions, you can significantly improve your financial future in a tax effective way.
Types of Contributions – how funds go into super
Concessional Contributions:
Concessional contributions are payments made into a super fund from your pre-tax income. These contributions are "concessionally" taxed at a flat rate of 15% within the super fund, rather than at an individual's marginal tax rate.
There are three types of concessional contributions:
- Employer Super Guarantee (SG) contributions: Currently, your employer is obligated to pay 12% of your ordinary time earnings (OTE) to your nominated super fund.
- Salary sacrifice contributions: Voluntary payments you arrange with your employer to deduct from your pre-tax salary and put into your super fund.
- Personal contributions for which you claim a tax deduction: Contributions you make from your after-tax income (e.g., from your savings) and then claim as a tax deduction on your income tax return.
There is a yearly limit on how much you can contribute as a concessional contribution without paying extra tax. For the 2025-2026 financial year, the concessional contributions cap is $30,000.
Carry-Forward Rule for Concessional Contributions
Since 2018, you are able to make "catch-up" concessional contributions if you haven't used your full cap in the previous five years assuming your super balance is less than $500,000 at the start of the financial year.
This can be particularly useful for people who have had periods of time out of the workforce or may have realised a large capital gain and want to minimise the tax they might be required to pay.
Be aware of Division 293 Tax
It is important to note that for those with an income and concessional contributions over $250,000 p.a., an additional 15% tax applies. The calculation for Division 293 tax is not always applied to the full amount of your concessional contribution. While still at a concession compared to the top marginal tax rate of 45%, it does reduce the tax benefit for high income earners.
Non-Concessional Contributions
Non-concessional contributions are personal contributions using after-tax income for which an individual does not claim a tax deduction. Because you've already paid income tax on this money, it is not taxed again when it's paid into your super fund. Non-concessional contributions are a popular way for individuals to boost their retirement savings.
Just like concessional contributions, there are limits on how much you can contribute as a non-concessional contribution without paying extra tax. The annual non-concessional contributions cap is $120,000 for the 2025-2026 financial year.
Total Super Balance (TSB) Threshold: Your ability to make non-concessional contributions is also determined by your total super balance at the end of the previous financial year. If your TSB is $2 million or more, you are unable to make non-concessional contributions.
The “Bring Forward” Rule: The most significant feature of non-concessional contributions is the "bring-forward" rule, which allows you to make a larger lump-sum contribution by using up to two years of future caps. This rule is available to individuals under age 75 (at some point in the financial year).The amount you can "bring forward" depends on your total super balance at the end of the previous financial year as per the table below.
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Tax benefits while funds are in accumulation phase.
While in accumulation phase, earnings within the fund are taxed at 15% rather than at your marginal tax rate. Realised capital gains on assets held for longer than 12 months are taxed at 10%. This tax benefit allows for more of your savings to compound at a greater rate over the long term.
Tax Benefits of commencing a retirement income stream.
This is arguably the most significant tax benefit of the super system.
- Once you are age 60 and retire from an employment arrangement, you may commence a retirement income stream (also known as an account based pension). The payments are not assessable for income tax purposes so are tax free. You can use up to $2 million of super assets to start a retirement income stream. This cap is indexed.
- When you commence a retirement income stream, the investment earnings, including realised capital gains, on the assets supporting it become tax-exempt (0% tax). This means your super assets are now compounding in a tax free environment.
- If you have turned 60, but are still working, you can partially access super via a Transition to Retirement (TTR) income stream. The payments must be between a minimum of 4% and a maximum of 10% of your account balance at the start of each financial year. Unlike a retirement income stream, the investment earnings on the assets associated with the TTR are still taxed at 15% rather than 0%.
- Once you turn 65, regardless of whether you are working or not you can start a tax free income stream.
Superannuation rules are complex and have many nuances which have not been outlined above. It is crucial to understand the rules and seek professional financial advice before embarking on super strategies.
Disclaimer(s)
The detail in this article is accurate as at October 2025. Superannuation laws are subject to change at anytime, so important you seek advice before relying on any detail within this article.
