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For most Australians, concessional contributions are the most common type of contributions appearing on their annual super fund statement as well as being the most tax effective.
Despite this, many people still don’t understand what concessional contributions are, or whether they’re eligible to receive them.
To help you learn more about these important super contributions, SuperGuide has put together this comprehensive guide.
What is a concessional super contribution?
Concessional contributions are any of the contributions paid into your super account that receive a concessional (or lower) tax rate. They are contributions made into your account from money that has not yet been taxed – so it’s before tax. That’s why concessional contributions are sometimes referred to as being before-tax contributions.
Concessional super contributions are taxed at the special low rate of 15% (if your income is under $250,000) to help you save for your retirement. For many people, this tax rate is lower than the marginal or top tax rate they pay on their income.
What types of contributions are concessional?
There are several types of concessional (before-tax) contributions, but the most common ones are the contributions made by your employer into your super account and salary-sacrifice contributions.
From 1 July 2017, concessional (before-tax) contributions include:
1. Superannuation Guarantee (SG) contributions
These are the compulsory contributions made by your employer into your super account as part of your pay. In 2021-22, the SG is 10% of your ordinary time earnings (OTE).
Your employer is required to pay SG contributions on your earnings up to an income limit. The maximum super contribution base for 2021-22 is $58,920 per quarter, which is equivalent to $235,680 a year.
If you earn above this quarterly limit, your employer does not have to make contributions for the part of your earnings over the limit.
2. Award contributions
These contributions are specified in some Employment Awards or Agreements and are paid by your employer. The amount of these super contributions depends on the individual Employment Award or Agreement (EA) certified by an industrial authority like the Fair Work Commission.
3. Additional pre-tax contributions made by your employer
These are contributions above the compulsory amount required by the SG legislation or EA. They are generally paid to employees of large companies as part of their salary package, or to some public sector employees.
4. Salary-sacrifice contributions
You are able to make an agreement with your employer to pay part of your before-tax salary directly into your super account. You decide how much you want your employer to pay into your super account each pay cycle from your before-tax income. The eligibility and work test criteria applying to salary-sacrifice contributions are outlined in the section later in this article.
5. Personal contributions for which you claim a tax deduction
Since 1 July 2017, most people can claim a tax deduction for any personal contributions they make into their super account. Annual limits apply. For more on this, see the section What is the concessional contributions cap? below. You are free to make the personal contribution at any time during the financial year and claim a tax deduction in your tax return for that financial year.
The work test rules that apply to these contributions for some people and are outlined in the section below.
6. Notional taxed and unfunded defined benefit contributions
If you are a member of a defined benefit super fund (including constitutionally protected funds), notional taxed contributions reflecting the increase in your super benefits for the year are considered the equivalent of an employer contribution.
7. First Home Super Saver (FHSS) Scheme contributions
If you are saving to buy your first home through the FHSS Scheme, your contributions can be either concessional (before-tax) contributions or after-tax contributions.
What is the concessional contributions cap?
As there are tax benefits in holding savings in your super account, the government places a strict annual cap (or limit) on concessional (before-tax) contributions going into super.
The concessional contributions cap for 2021-22 is $27,500. From 1 July 2017 to 30 June 2021, the cap was $25,000.
The cap applies to the total of all your super accounts across different super funds.
The concessional contributions cap is indexed and any contributions over this limit are subject to extra tax (see section below). From 1 July 2017, the cap is indexed in line with average weekly ordinary time earnings (AWOTE), in increments of $2,500 (rounded down).
Concessional contributions caps in the current and previous financial years
| Income year | Effective date | Your age at this date | Your concessional contributions cap |
|---|---|---|---|
| 2021-22 | All ages | $27,500 | |
| 2020-21 | All ages | $25,000 | |
| 2019-20 | All ages | $25,000 | |
| 2018-19 | All ages | $25,000 | |
| 2017-18 | All ages | $25,000 | |
| 2016-17 | 30 June 2016 | Below 49 | $30,000 |
| 49 and over | $35,000 | ||
| 2015-16 | 30 June 2015 | Below 49 | $30,000 |
| 49 and over | $35,000 | ||
| 2014-15 | 30 June 2014 | Below 49 | $30,000 |
| 49 and over | $35,000 | ||
| 2013-14 | 30 June 2013 | Below 59 | $25,000 |
| 59 and over | $35,000 |
Source: ATO
Once concessional contributions are in your super account, a 15% contributions tax is applied to the money by your super fund.
It’s important not to exceed your annual concessional contributions cap, as you may have to pay extra tax if you do. The actual amount of tax depends on your age and the financial year in which your concessional contributions were made, but it’s generally your marginal tax rate plus an interest charge.
What if I don’t use all my annual contributions cap?
From 1 July 2017, the super rules were changed to allow you to roll forward any of your unused annual concessional contributions cap. This means if you don’t use the full amount of your contributions cap in a particular year, you can carry forward the unused cap amount and take advantage of it up to five years later.
What happens if I exceed my concessional contribution cap?
It’s important to keep track of the amount of your concessional (before-tax) contributions and when they are received by your super fund to avoid going over your concessional contributions cap and potentially paying extra tax.
It’s up to you – not your super fund or the ATO – to keep track of all the concessional contributions made by both you and your employer into your super account.
Although your employer may pay your salary regularly (such as fortnightly), it is not required to make SG contributions into your super account at the same time. In fact, it has until 28 days after the end of each quarter to make SG payments.
| Financial year quarter | End date of quarter | Deadline for SG contributions |
|---|---|---|
| Q1 (July – September) | 30 September | 28 October |
| Q2 (October – December) | 31 December | 28 January |
| Q3 (January – March) | 31 March | 28 April |
| Q4 (April – June) | 30 June | 28 July |
When working out your concessional contributions for the financial year, it’s important to remember contributions don’t count when the payment is sent. They only count once the contribution payment is received by your fund.
Am I eligible for concessional contributions?
For you or your employer to make concessional contributions into your super account, you must meet the following eligibility criteria:
1. SG contributions by your employer
- Employment: Generally, you are entitled to SG contributions from your employer when you are aged over 18 and paid $450 or more (before tax) in a month. This applies whether you are full time, part time, casual or a temporary resident. If you are aged under 18, you must work a minimum of 30 hours a week to be entitled to SG contributions.
- Age: If you are entitled to SG contributions from your employer, they can be accepted by your super fund whatever your age.
2. Award and additional pre-tax contributions by your employer
- Employment: If you are employed under an Employment Award or Agreement (EA) certified by an industrial authority and it specifies you are eligible for super contributions, you may still be eligible if you are aged 18 and working less than 30 hours a week, or are aged 75 and older and not eligible for SG contributions.
- Age: If you are entitled to award contributions from your employer, they can be accepted by your super fund whatever your age.
3. Salary-sacrifice arrangement
- Employment: To negotiate a salary-sacrifice arrangement with your employer, your employer must be willing to enter into this type of arrangement. If your employer is not prepared to enter into this type of arrangement, you can’t force them to agree.
- Age:
- If you are under 67, you are eligible to make salary-sacrifice contributions into your super account.
- If you are 67 to 74, you must pass the work test (be ‘gainfully employed’ for at least 40 hours in 30 consecutive days during the same financial year) or be eligible for the work test exemption.
- If you are aged 75 and over, you are not permitted to make salary-sacrifice contributions.
4. Personal contributions for which you claim a tax deduction
- Employment: From 1 July 2017, you are eligible to make a personal contribution regardless of your employment arrangement. Your income can come from salary and wages, a personal business, investments, government pensions or allowances, super, partnership or trust distributions and a foreign source.
- Age:
- If you are under 67, you are eligible to make a personal contribution into your super account and claim a tax deduction. (If you are aged under 18 at the end of the financial year in which you made the contribution, you can only claim a deduction if you also earned income as an employee or a business operator during the year.)
- If you are 67 to 74, you must pass the work test (be ‘gainfully employed’ for at least 40 hours in 30 consecutive days during the same financial year) or be eligible for the work test exemption.
- If you are 75 and over, you are generally not permitted to contribute and claim a tax deduction. You can only claim a deduction for contributions you make before the 28th day of the month following the month in which you turned 75, plus you must still satisfy the work test.
- Notification: To claim a tax deduction for a personal super contribution, you must have given your super fund a Notice of intent to claim or vary a deduction for personal contributions form and have received back a formal acknowledgement. You must also still be a member of your fund and it must still hold your contribution. In addition, your super fund must not have started paying a super income stream using the contribution and you must not have applied to split the contribution, or have given notice under the First Home Super Saver Scheme (FHSSS).
- Time of lodgment: When you lodge your Notice of intent to claim or vary a deduction for personal contributions form, it must be before you lodge your tax return for the year in which you made the contribution, or before the end of the income year following the one in which you made the contributions. To claim your deduction, when you complete your tax return you can attach your notice of intent to claim form or provide a copy of the form to your tax agent.
- Contribution type: You cannot claim a tax deduction for personal contributions into your super account such as a rolled-over super benefit, employer contributions (such as SG and salary-sacrifice amounts), an FHSSS amount recontributed to your super account or a downsizer contribution. Contributions made into a Commonwealth public sector defined benefit fund (such as the DSS or PSS) or an untaxed or constitutionally protected fund are also ineligible for a tax deduction.
