- What is counted as a concessional contribution?
- What is the annual limit for concessional (before-tax) contributions?
- Concessional contributions cap for 2017/2018 year, 2016/2017 year, and earlier years
- Transitional over-50s concessional contributions caps for 2011/2012 year and earlier years
- How are concessional contributions treated tax-wise?
- LISC/LISTO applies indefinitely
- Recent income tax cuts make super tax-effective for more Australians
- What if I exceed my concessional contributions cap?
- What if I leave the excess concessional contributions in my super account?
- What happens to excess concessional contributions made before the 2013/2014 year?
- Okay, that’s the theory on concessional contributions, how do the rules work in real life?
- Ten tips for over-65s when making super contributions
- Additional Contributions Guides
- Further articles covering concessional contributions
Note: The concessional contributions caps for the 2016/2017 financial year are not affected by the 2016 Federal Budget changes reducing the size of the annual concessional cap from 1 July 2017. For information about the lower concessional cap of $25,000 for all age groups, effective from 1 July 2017, see SuperGuide article Concessional contributions caps to be slashed from July 2017.
This article explains all of the important rules that apply to concessional (before-tax) super contributions for the 2016/2017 year, and for previous years.
Superannuation contributions can be divided into two types — concessional (before-tax) and non-concessional (after-tax). Each type of super contribution is subject to a contributions cap. A contributions cap sets a limit on the amount of contributions you can make in any one year. This article deals with concessional contributions, including what type of super contributions can be classified as concessional contributions, and how much you can contribute as concessional contributions each financial year.
Note: If you’re seeking information about non-concessional (after-tax) super contributions then refer to our other SuperGuide article Your 2016/2017 guide to non-concessional (after-tax) contributions. If you’re seeking information about the changes to the after-tax contributions cap from July 2017, see SuperGuide article Non-concessional contributions: 10 facts about new $100,000 cap.
What is counted as a concessional contribution?
Concessional contributions, also known as before-tax contributions, include your employer’s compulsory contributions (Superannuation Guarantee), additional employer contributions, and any salary sacrificed contributions that you arrange for your employer to deduct from your before-tax salary.
Note: For the 2016/2017 year, employers are required to contribute the equivalent of 9.5% of an employee’s ordinary times earnings as Superannuation Guarantee contributions. For the 2015/2016 and 2014/2015 financial years, the same rate of 9.5% applied. For the 2013/2014 year, the SG rate was 9.25%, and for the 2012/2013 year, the SG rate was 9%.
If you’re self-employed (or you only receive a small proportion of your income from an employer – the 10% rule), or you’re not employed, then you can make concessional contributions that you claim as a tax deduction in your individual tax return. Tax-deductible super contributions are treated as concessional contributions and are subject to the same cap. You must lodge a notice of intention to claim a tax deduction with your super fund. Taking effect from 1 July 2017, the 10% rule will no longer apply and all employees will be able to make tax-deductible contributionsThe Government intends to abolish the 10% rule from 1 July 2017, but for the 2016/2017 financial year, the 10% rule still applies. For more information about the current rules applying to tax-deductible super contributions, see SuperGuide article Who can make tax-deductible super contributions?. For the rules applicable from July 2017, see SuperGuide article Employees can make tax-deductible super contributions from July 2017
What is the annual limit for concessional (before-tax) contributions?
In short, for the 2016/2017 year, there are 2 annual concessional contributions caps you need to be aware of when considering before-tax contribution strategies, namely:
- $30,000 cap for anyone aged 48 or under as at 30 June 2016.
- $35,000 cap for anyone aged 49 years or over as at 30 June 2016.
Superannuation Guarantee contributions count towards cap: You also need to be mindful of your concessional cap of $30,000 (or $35,000 if aged 49 years or over on 30 June 2016) when considering any salary sacrifice strategy for the 2016/2017 year. Your employer’s SG contributions count towards the cap, which means that anyone making additional contributions under a salary sacrifice arrangement needs to check that they don’t exceed the concessional contributions caps in place for the 2016/2017 year.
If you’re aged 65 or over, you must satisfy a work test to make super contributions. The Government planned to remove the work test requirement from 1 July 2017, but changed its mind. The work test for over-65s making super contributions still applies for the 2016/2017 year, and continues to apply for future financial years. For more information on the over-65s work test, see SuperGuide article https://www.superguide.com.au/boost-your-superannuation/over-65s-work-test-how-does-it-operate-again
Note: You cannot make voluntary super contributions after turning 75. For more information on the over-75 rule, see SuperGuide article Super contributions beyond the age of 75.
I outline the concessional caps for the 2017/2018 and 2016/2017 years, and previous financial years in the table below.
Concessional contributions cap for 2017/2018 year, 2016/2017 year, and earlier years
|Income year||Under 50||50 years to 59 years*||60 years and over**|
|*If you were 49 years of age or older as at 30 June 2016, then your concessional contributions cap for the 2016/2017 year is $35,000. If you were 49 years of age or older as at 30 June 2015, then your concessional contributions cap for the 2015/2016 year is $35,000. If you were 49 years of age or older as at 30 June 2014, then your concessional cap for the 204/2015 year was $35,000. |
**If you were 59 years of age or older as at 30 June 2013 then you were eligible for the higher concessional cap of $35,000 for the 2013/2014 year.
Concessional caps for the 2015/2016 year: For reference, in case some readers are checking that they have complied with the contribution rules for the previous financial year, the 2 annual concessional contributions caps for the 2015/2016 year were:
- $30,000 cap for anyone aged 48 or under as at 30 June 2015
- $35,000 cap for anyone aged 49 years or over as at 30 June 2015.
Background (a bit technical so skip this paragraph if not interested in history of the rules): For the 2014/2015 and 2015/2016 financial years, the concessional caps were the same limits as now apply for the 2016/2017 year. Looking further back, the general concessional cap for the 2013/2014 year was $25,000 and this cap had been in place for many years. The cap should have increased to $30,000 for the 2012/2013 year and 2013/2014 year (due to the indexation rules applicable to the contributions caps), but the federal government froze the contributions caps for the 2012/2013 and 2013/2014 years. The general concessional cap then increased to $30,000 for the 2014/2015 year. Since 1 July 2013 onwards, over-60s have been subject to a higher cap of $35,000 (unindexed): more specifically, if you were aged 59 years or over as at 30 June 2013, then your concessional cap was $35,000. Since 1 July 2014, over-50s became subject to the higher cap of $35,000 (unindexed): more specifically, if you were aged 49 years or over as at 30 June 2014, then your concessional cap for the 2014/2015 year was $35,000.
Note: From 1 July 2017, the federal government has introduced a single concessional cap of $25,000 for everyone, rather than a higher cap for over-50s. For more information on the post-July 2017 concessional cap, see SuperGuide article Concessional contributions caps to be slashed from July 2017
For completeness, we have also listed the concessional contributions caps, including the transitional over-50s concessional cap, applicable for the 2011/2012 year, and earlier years (see table below).
Transitional over-50s concessional contributions caps for 2011/2012 year and earlier years
|Income year||Under 50||Transitional cap for over-50s|
How are concessional contributions treated tax-wise?
For most Australians, concessional (before-tax) contributions are hit with a contributions tax of 15 per cent, which means making such contributions is only tax effective if you pay more than 15 cents in the dollar tax on your personal income (noting that, apart from zero tax, the lowest marginal tax rate is now 19% plus Medicare levy). The employer claims a tax deduction when making SG contributions or when making contributions under a salary sacrifice arrangement. An individual can choose to use a salary sacrificing arrangement as a way to pay less tax by reducing the amount of personal income that is taxable (although the concessional contributions are subject to at least 15% contributions tax within the super fund).
Note: Since 1 July 2012, if your adjusted taxable income is more than $300,000 a year, then your concessional super contributions (including your employer’s SG contributions) will be subject to an additional tax of 15% (known as Division 293 tax, taking the total tax on your concessional contributions to 30%. From 1 July 2017, the Division 293 tax on super contributions will be expanded to apply to those with an adjusted taxable income of more than $250,000 a year. For more information on this extra tax measure for high-income earners see SuperGuide article Double contributions tax for more high-income earners.
If an individual intending to make the concessional contributions is not an employee (or receives less than 10% of his or her income from an employer), then he or she can claim a tax deduction for personal super contributions in his or her tax return, subject to lodging the appropriate form with his or her super fund. Ensure you verify your position with an accountant or the ATO, if you plan to rely on the 10% rule (for more information see SuperGuide article Tax-deductible super contributions: Meeting the 10% income test). Note that the 10% rule will no longer apply from 1 July 2017 (for more information, see SuperGuide article, Employees can make tax-deductible super contributions from July 2017.
Important: If you pay less tax on your wages and salary (and other income), than the 15% contributions tax that is payable on concessional contributions and the 15% tax on super fund earnings, then making concessional super contributions may not be a tax-effective option. The good news is that those on lower incomes can now secure a refund of contributions tax deducted from their super accounts, known as the Low Income Super Contribution (LISC), and soon to renamed as the Low Income Superannuation Tax Offset (LISTO).
LISC/LISTO applies indefinitely
From the 2012/2013 year until the 2016/2017 year, super became more tax-effective for Australians who pay less tax on their personal income than the 15% tax on concessional contributions, and more tax-effective for those who have a marginal income tax rate of 19%.
For the 5 financial years mentioned in the previous paragraph, the government refunds any contributions tax paid on concessional (before-tax) contributions, such as your employer’s compulsory Superannuation Guarantee contributions, if you earn less than $37,000. You can expect a refund of the contributions tax deducted from your super account, up to a maximum of $500, paid directly to your superannuation account by the federal government. The federal government calls this refund of super tax, the Low Income Super Contribution (LISC).
From 1 July 2017, the superannuation tax refund continues to apply but it will be renamed the Low Income Superannuation Tax Offset (LISTO). (I explain the Low Income Super Contribution, including the rules for eligibility, in our SuperGuide article Super tax refund for lower-income earners extends beyond June 2017).
Recent income tax cuts make super tax-effective for more Australians
Since July 2012 (start of the 2012/2013 financial year), the former ALP federal government introduced tax cuts to offset the increase in the cost of living expected from the imposition of the carbon tax on Australia’s biggest polluting companies. The tax cuts mean a higher tax-free threshold of $18,200, and higher marginal tax rates for incomes above $18,200 and below $80,000. What this means is that for those earning more than $20,542 (for the 2016/2017 year, or for the previous 2015/2016 and 2014/2015 years), they will be paying 19% income tax plus Medicare levy, compared to 15% tax on super fund investment earnings, which means making concessional super contributions has become more tax-effective for more Australians. Although the Liberals repealed the MRRT legislation, they retained the related tax cuts, making super tax effective for taxpayers paying more than 15 cents in the dollar income tax.
Note one: The Liberals did however introduce the 2% Temporary Budget Repair Levy, which is imposed on any taxpayer with a taxable income greater than $180,000. The top marginal rate is now 47% (previously 45%) plus 2% Medicare levy, and applies until the end of the 2016/2017 financial year (30 June 2017), and from 1 July 2017, the top tax rate will fall back to 45% plus Medicare levy. For more information, see SuperGuide article Temporary Budget Repair Levy: More income tax for high-income earners until June 2017.
Note two: The Coalition government has also introduced an income tax cut for those earning more than $80,000 a year, taking effect from 1 July 2016, that is, from the 2016/2017 year (see SuperGuide article Income tax cut for 2016/2017 year, and for 2017/2018 year )
TFN alert: If your super fund doesn’t have your tax file number, your concessional (before-tax) contributions, including SG contributions, are subject to an additional tax of 34 per cent, which means you end up paying 49% tax on your concessional contributions for the 2016/2017 year. That would be a pointless exercise! Check that your super fund has your tax file number.
What if I exceed my concessional contributions cap?
If you’re considering making concessional contributions to a super fund you need to be aware of the following issues:
- size of your concessional contributions cap
- amount of Superannuation Guarantee contributions your employer is making for the year
- timing of your super contributions, and your employer’s contributions
- submitting the correct form by a certain time, if you’re planning to claim a tax deduction for the contribution (applicable to self-employed or those substantially self-employed)
If you exceed your concessional cap (from the 2013/2014 year onwards), the excess concessional contributions will then be taxed at your actual marginal tax rate, plus an interest charge (as would happen for income tax paid late to the ATO), rather than the top marginal tax rate. If you’re already on the top marginal rate, then your super contributions will be subject to an interest charge only. The excess contributions are eligible for a 15% tax offset, to allow for the 15% contributions tax already deducted from the super contribution upon entry to the super fund.
You can choose to withdraw part of the excess contributions (up to 85%) to help pay the higher amount of income tax. Alternatively, you can choose to retain the excess concessional contributions in your super account, and pay the extra income tax from your personal savings. If you do choose to retain the excess contributions within your super account, note also that those excess concessional contributions will count towards your non-concessional cap (see SuperGuide article Your 2016/2017 guide to non-concessional (after-tax) contributions).
Important: If you have made excess concessional contributions in previous financial years, note that excess concessional contributions were treated more harshly in the 2012/2013 year and earlier financial years (see later in the article).
What if I leave the excess concessional contributions in my super account?
The federal government also allows you to withdraw from your super fund, any excess concessional contributions made from 1 July 2013, and if you don’t withdraw the excess concessional contributions, those contributions will then count towards your non-concessional (after-tax) contributions cap.
In earlier financial years, this special rule has caused financial chaos for Australians trying to do the right thing and save pro-actively for their own retirement. See the next section of this article for the excess concessional contributions rules applicable before July 2013.
Note: Although the government had made the excess contributions rules more lenient when making concessional contributions, excess after-tax contributions were still treated harshly. Fortunately, in the 2014 Federal Budget, the government announced that any super contributions made by an individual that breached the non-concessional (after-tax) contributions cap could be withdrawn from the super fund without penalty. In addition, any earnings related to those excess super contributions can also be withdrawn, but would then be subject to the individual’s marginal tax rate. In other words, the super fund earnings connected to the excess non-concessional contributions would then also form part of your regular income and be subject to your marginal tax rate. For more information on non-concessional contributions, including the excess non-concessional contributions rules applicable from 1 July 2013, see SuperGuide article Your 2016/2017 guide to non-concessional (after-tax) contributions.
What happens to excess concessional contributions made before the 2013/2014 year?
Since 1 July 2013, if you exceed your concessional cap, your excess concessional contributions count towards your assessable income and are subject to your marginal tax rate plus an interest charge.
The more lenient approach to concessional contributions only applies from the 2013/2014 year, and any excess concessional contributions made in previous financial years are still hit with the top marginal tax rate applicable for those years (45% plus Medicare levy) within the super fund. Also note, that effective from 1 July 2011 until 30 June 2013, individuals who have breached the concessional contributions cap by up to $10,000 can request that these excess contributions be refunded to them. You can only make this refund request if you have breached the concessional cap for the first time.
At the risk of repeating information, since 1 July 2013, you are permitted to withdraw all excess concessional super contributions made on or after 1 July 2013, subject to following certain procedures and completing certain forms. For more information on how the excess contributions tax rules work see the SuperGuide article Excess contributions rules: A quick summary.
Okay, that’s the theory on concessional contributions, how do the rules work in real life?
Let’s look at two individuals — Robert (age 46) and Joan (age 56).
Case study one: Robert, age 46 and earns $100,000 a year
Robert: Robert is 46 and earns $100,000 plus his employer’s 9.5% SG contributions of $9,500 (total package of $109,500). Robert was planning to salary sacrifice $30,000 for the 2016/2017 year and make the most of his contributions cap. Ah, but what about Robert’s employer contributions of $9,500? If Robert proceeds with his strategy he will exceed his cap by $9,500. Any excess contributions above his 2016/2017 cap of $30,000 will be subject to his marginal tax rate plus an interest charge, less a 15% tax offset to allow for the 15% contributions tax already paid. He can withdraw part or all of the excess contributions to help pay the extra tax. If he chooses to leave the excess concessional contributions within the fund, then those excess contributions also count towards his non-concessional contributions cap.
Assuming Robert doesn’t want to go through the hassle of copping the extra tax, and applying for a refund of his super contributions (or leaving the excess super contributions in the fund), then, the maximum that he can salary sacrifice for the 2016/2017 year is $20,500, after allowing for his employer’s SG contributions of $9,500.
More precisely, Robert can make before-tax contributions in excess of his $30,000 cap, but if he does, then the excess contributions are subject to his marginal tax rate of 37% (less the 15% contributions tax already paid), plus an interest charge. If he retains those excess contributions within the fund, then they also count towards his non-concessional (after-tax) contributions cap.
Case study two: Joan, age 56 and earns $120,000 a year
Joan: Joan is 56 and earns $120,000 a year running her own fashion business. She is self-employed and she is not treated as an employee by her business, which means Joan can make tax-deductible super contributions if she wishes.
An Australian workers can reduce taxable employment income by entering into a salary sacrificing arrangement, or, if self-employed, as Joan is, she can reduce taxable income by making tax-deductible super contributions.
Joan is planning to take advantage of her full concessional cap for the 2016/2017 which is $35,000 for a person who is aged 49 years or over on 30 June 2016. She remembers the days when over-50s could make up to $100,000 a year, and even more, in concessional contributions (2008/2009 year and earlier years) but the rules changed before Joan turned 50 and was able to take advantage of the larger concessional caps.
If Joan makes more than $35,000 in tax-deductible super contributions, then any excess contributions above her 2016/2017 cap of $35,000 will be subject to her marginal tax rate plus an interest charge, less a 15% tax offset to allow for the 15% contributions tax already paid. She can withdraw part or all of the excess contributions to help pay the extra tax. If she chooses to leave the excess concessional contributions within the fund, then those excess contributions also count towards her non-concessional contributions cap.
Ten tips for over-65s when making super contributions
If you’re under the age of 65, you don’t have to be working to make super contributions. If you’re aged 65 or over, however, you must satisfy a work test to make super contributions for the 2016/2017 year. I explain the work test and the other contribution rules for over-65s in the SuperGuide article: For over-65s: Ten super tips when making contributions.
Additional Contributions Guides
Click on the links below to access other SuperGuide contributions guides:
- Your 2016/2017 guide to non-concessional (after-tax) contributions
- Cashing in on the co-contribution rules (2016/2017 year)
Further articles covering concessional contributions
The following SuperGuide articles may also be of assistance:
- Superannuation Guarantee rate 9.5% for 2016/2017 year, and for 2017/2018 year
- Superannuation Guarantee: 10 facts about your SG entitlements
- Concessional contributions caps: 10 facts you should know
- Salary sacrificing and super: 10 facts you should know
- Concessional contributions: What form do I use to claim a tax deduction?