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For most Aussies, concessional contributions are the most common type of contributions appearing on their annual super fund statement, as they are the ones made by employers on their behalf.
Despite this, many people still don’t understand what concessional contributions are, or the role they play when it comes to saving for your retirement.
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. As they are made from money that has not yet been taxed, 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 plus concessional contributions 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 any salary-sacrifice contributions you decide to make.
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 2023–24, the SG rate is 11% of your ordinary time earnings (OTE).
Your employer is required to pay SG contributions on your earnings up to an income limit. This income limit is called the Maximum Superannuation Contribution Base and for 2023–24 it is $62,270 per quarter, which is equivalent to $249,080 a year.
If you earn above this quarterly limit, your employer doesn’t have to make SG 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 depends on the individual employment award (EA) or agreement 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 criteria for these contributions are outlined 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. The eligibility criteria for these contributions is outlined later in this article.
You are free to make personal contributions at any time during a financial year and you can claim a tax deduction for them in your tax return for that financial year.
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 Scheme (FHSSS) contributions
If you are saving to buy your first home through the FHSSS, your contributions can be either concessional (before-tax) 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.
The general concessional contributions cap for 2023–24 is $27,500.
The cap applies to the total of all your super accounts across different super funds.
The general 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).
General concessional contributions cap in the current and previous financial years
|General concessional contributions cap
Once concessional contributions are in your super account, your super fund applies a 15% contributions tax, which is paid to the ATO.
Although the general concessional contributions cap in 2023–24 is $27,500, in certain circumstances you may be able to contribute more.
From 1 July 2018, the super rules were changed to allow people with a total super balance below $500,000 on 30 June to roll forward unused annual concessional contributions cap amounts for up to five years. 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 contributions cap?
It’s important to keep track of the total amount of your concessional (before-tax) contributions each year and when they are received by your super fund. If you go over your annual concessional contributions cap you could potentially end up paying extra tax. The ATO will issue you with an excess concessional contributions determination and advise you what actions you can take.
Excess concessional contribution tax is charged at your marginal rate, less a 15% offset to account for the contribution tax already paid. The effect of this is that excess contributions are taxed at the same total rate they would have been if you had received the amount as salary.
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, your employer has until 28 days after the end of each quarter to make SG payments.
When working out your concessional contributions for the financial year, it’s important to remember contributions don’t count when the payment is sent to your super fund. They only count once the payment is received by your fund.
Am I eligible for concessional contributions?
For you or your employer to be eligible to make concessional contributions into your super account, you must meet the eligibility criteria applying to the particular type of concessional contribution:
1. SG contributions by your employer
- Employment: Generally, you are entitled to SG contributions from your employer when you are aged 18 and over. This applies whether you are full-time, part-time, casual or a temporary resident. If you are aged under 18 or are engaged in work of a private or domestic nature (like a nanny), 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 certified by an industrial authority and it specifies you are eligible for super contributions, you may still be eligible for these contributions even if you are aged under 18 and working less than 30 hours a week.
- Age: If you are entitled to mandated contributions from your employer, they can be accepted by your super fund whatever your age or the number of hours you work.
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. You could choose to make personal contributions and claim a tax deduction instead.
- If you are under 75, you are eligible to make salary-sacrifice contributions into your super account.
- If you are aged 75 and over, you are not permitted to make salary-sacrifice contributions. When you turn 75, salary-sacrifice contributions can be accepted by your super fund no later than 28 days after the end of the month you turn age 75.
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.
- 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 a formal acknowledgement. You must lodge the form while you are 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.
- Time of lodgement: 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, whichever is earlier.
- Contribution type: You cannot claim a tax deduction for 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 CSS or PSS) or an untaxed fund are also ineligible for a tax deduction.