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Concessional versus 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 – usually through salary sacrifice or 'contribute and claim'. 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.
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.
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.
Why make non-concessional super contributions?
A main benefit of non-concessional super contributions can be helping to grow your nest egg for retirement. Tax benefits can occur down the track though. Once you turn 60 and start a super pension income stream, your super's investment earnings and your pension income 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 very useful 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.
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What is a carried forward concessional contribution?
A carried forward concessional contribution basically 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. It is helpful if your super balance is below $500,000 and your income varies a lot from year to year.
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 payments up to $35,000, rather than the usual $30,000 cap.
More information on maximum contributions.
What if I exceed the concessional contributions cap?
If you exceed the cap, then you may be notified by the ATO that you've gone over the contributions limit. Sometimes they give you the choice of either:
- having up to 85% of the excess contribution amount refunded to you (up to $10,000), or
- paying tax on the excess at your normal tax rate, plus an additional excess contributions charge
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.