read
Concessional vs non-concessional contributions
Comparing the tax you pay on super contributions
Some types of super contributions can reduce the amount of tax you have to pay in addition to adding to your retirement savings. One of these is called a concessional contribution.
What is a concessional contribution?
A concessional contribution is a voluntary payment from your before-tax income to your super. Instead of it being taxed at the normal income tax rate, concessional contributions are taxed at the ‘concessional’ rate of 15%. This concessional tax rate is only available to those with an income below $250,000 per year . 1 To find out more about the tax rate applicable to those earning $250,000 or more, please refer to our Member Guide.
Concessional contributions are capped at $30,000 per year, including any compulsory super paid by your employer. It may be possible, however, to increase the cap by using the 'carry forward' rule, which allows you to carry forward unused limits from the last five years.
1Refer to Division 293 threshold on the ATO website for more information.
How to make concessional contributions:
Concessional contributions are usually made through
- Salary sacrifice, also called salary packaging, or
- Contribute and claim
What is a non-concessional contribution?
A non-concessional contribution is a personal payment to your super. It can come from taxed income, a windfall or savings, and you can transfer up to $120,000 per year – or possibly even more if you use up some of the limit from future years, thanks to the ‘bring forward’ rule.
Are non-concessional contributions tax-deductible?
You may be able to claim tax deductions for non-concessional super contributions by having them treated as concessional contributions through ‘contribute and claim’. Note that eligibility requirements and restrictions apply.
Why make non-concessional super contributions?
A main benefit of non-concessional contributions is that they can help grow your nest egg for retirement in a tax-efficient environment. Then, once you turn 60 and start a retirement income stream (pension), your investment earnings and pension payments are tax-free"
Should I contribute to super before or after tax?
Making your own extra contributions to your super can increase how much you could enjoy in retirement. Some of those who choose to do so make before-tax or after-tax contributions, while others will do a mixture of both, and even change from year to year. It all depends on your own personal circumstances. Before-tax 'contribute and claim' payments are often for sole traders and the self-employed.
Regardless of which you choose, it's good to seek professional advice first and always keep an eye on the caps for each, especially since the compulsory employee super guarantee contributions are counted towards your pre-tax, concessional contribution limits.
We're here to help
We can help you make your superannuation work harder for you. So, if you've got questions about any aspect of your super, book a chat with one of our super specialists.
What is a carried forward concessional contribution?
A carried-forward concessional contribution involves using any unused portion of a concessional contribution limit from one year and adding it to your contribution cap any time up to five years later.
For example, if in the 2022 financial year your employer and you put $22,500 into your super as a concessional contribution, this means you had $5,000 of the limit left as the total cap in 2021-22 was $27,500. The $5,000 can be carried to your 2025 contributions cap, and you get the 15% tax rate benefit on contributions up to $35,000, rather than the usual $30,000 cap.
To be eligible, your super balance at 30 June of the prior financial year must be below $500,000. Carry forward concessional contributions can be helpful if your income varies from year to year or if you are looking to boost your super with extra contributions.
More information on maximum contributions.
What if I exceed the concessional contributions cap?
If you exceed the cap, then you will be notified by the ATO that you've gone over the contributions limit. You can withdraw up to 85% of your ECC from your super fund to pay your income tax liability.
You can choose to withdraw the amounts from one or more funds. The total amount withdrawn cannot be more than 85% of the excess concessional contribution amount stated in your determination.
To find out more about exceeding the contributions cap, visit the ATO website.
If you have less than $500,000 in your super account (or accounts), you may be able to use the carry forward rule to increase your limit.
It's always wise to chat with your accountant straight away if you think you've exceeded your limit. Don't wait for the ATO notice.
6 different ways to contribute
Why am I paying contribution tax on my super?
Remember that before-tax contributions are taxed at 15%, while after-tax contributions are not further taxed. If you have exceeded contribution limits for both concessional and non-concessional contributions, extra taxes may apply.