2018/2019 guide to concessional contributions (before-tax super contributions)

Although it can be hard getting your head around all the different types of super contributions that go into your super account, concessional contributions are the ones you are mostly likely to have and are pretty straightforward to understand.

Concessional contributions – what’s that mean?

Concessional contributions receive a ‘concessional’ tax treatment, which means they are contributions made into your account from money that generally has not yet been taxed – so it’s before-tax. That’s why concessional contributions are often referred to as being before-tax contributions.

These contributions are concessionally taxed at the special low rate of 15% (if your income is up to $250,000) to help you save for your retirement. For many people, this tax rate is lower than the marginal tax rate they pay on their income.

Note: If your income plus any concessional (before-tax) super contributions is more than $250,000 in a particular financial year, you may be liable for Division 293 tax of an additional 15% on some or all of your concessional contributions. Division 293 tax is payable in addition to the standard 15% contributions tax paid when your concessional contributions enter your super account. For more information, see SuperGuide article How the Division 293 tax works: Super surcharge for high earners

What contributions are concessional?

There are several types of concessional (before-tax) contributions, but the two most common ones are the contributions made by your employer into your super account and any salary sacrifice contributions you make. Concessional contributions also include any personal after-tax contributions for which you claim a tax deduction.

From 1 July 2017, concessional (before-tax) contributions include:

1. Superannuation Guarantee (SG) contributions are the compulsory contributions made by your employer into your super account on your behalf as part of your pay. In 2018/2019, the SG is 9.5% of your ordinary time earnings (OTE), but this is set to rise slowly to 12% by 1 July 2025. The SG contribution is payable on your earnings up to a limit (maximum super contribution base of $54,030 per quarter, which is equivalent to $216,120 in 2018/2019). If you earn above the quarterly limit, your employer does not have to make contributions for the part of your earnings over the limit. For more information, see SuperGuide article Your simple guide to Superannuation Guarantee (SG) contributions.
2. Award 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 certified by an industrial authority like the Fair Work Commission.
3. Additional pre-tax contributions made by your employer are contributions above the compulsory amount required by the SG legislation or Employment Award. 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 are an agreement you make with your employer to pay part of your before-tax salary directly into your super account. At the start of the financial year you decide how much you want your employer to pay into your super account each pay cycle before income tax on your salary or wages is deducted. Salary sacrifice contributions can be made up to age 65, but if you are aged between 65 and 74, you will need to pass a work test. These contributions cannot be paid after age 75. For more information, see SuperGuide article Salary sacrifice and super: How does it work?
5. Personal contributions which you claim a tax deduction on were previously only available to people earning less than 10% of their income from an employer. From 1 July 2017, most people can now claim a deduction for personal contributions they make into their super account. You are free to make a personal contribution at any time during the year (provided it is received by your super fund by 30 June) and claim a tax deduction in your tax return, which can be useful towards the end of the financial year if you have not reached your concessional contributions cap. For more information, see SuperGuide article Guide to tax-deductible superannuation contributions
6. Notional taxed and unfunded defined benefit contributions if you are a member of a defined benefit fund (including constitutionally protected funds), are considered to be the equivalent of an employer contribution. For more information, see SuperGuide article Defined benefit fund members: Are we subject to contributions caps?

Note: If you split your concessional (before-tax) contributions and give some to your spouse, the contributions are still counted towards your concessional contributions cap.

What are the limits for concessional contributions?

As there are tax benefits in holding savings in your super account, the government has a strict annual cap (or limit) on concessional (before-tax) contributions into super.

The limits apply to the total of all your super accounts across different super funds.

The concessional contributions cap is indexed and any contributions over these limits are subject to extra tax. From 1 July 2017, the cap is indexed in line with average weekly ordinary time earnings (AWOTE), in increments of $2,500 (rounded down).

If you have a Total Super Balance of less than $500,000 on 30 June of the previous financial year, you can use any unused amount of your cap for up to 5 years to make a Carry-forward Contribution (see section below).

The $25,000 annual limit is the amount contributed into your super account before the 15% contributions tax is applied to the money by your super fund.

It is important not to exceed your concessional contributions cap as you may have to pay extra tax if you do. The actual amount of tax will depend on your age and the financial year in which your concessional contributions were made, but is generally your marginal tax rate plus an interest charge.

If you go over your concessional contributions cap, the ATO will issue you with an excess concessional contributions determination and advise you what actions you can take. For more information on excess contributions, see SuperGuide article What to do if you exceed your super contributions caps.

In past years, the concessional (before-tax) contribution caps were set at different amounts and the contributions cap was also limited by your age. Following the reforms made to the super system that commenced on 1 July 2017, the concessional (before-tax) contributions cap is the same for everyone, regardless of their age.

Concessional contributions caps in other financial years

Source: ATO

Carrying forward your concessional contributions cap to grow your super balance

From 1 July 2017, the super rules were changed to allow super fund members to use any of their unused concessional contributions cap on a rolling basis for five years. This means if you don’t use the full amount of your concessional contributions cap in a particular year, you can carry-forward the unused amount and take advantage of it up to five years later. Any amount not used after five years expires.

Note: The first year in which you will be able to access unused concessional contributions is the 2019/2020 financial year. This means the effective starting date for making additional concessional contributions will be 1 July 2019.

Generally the same rules apply to carry-forward contributions as normal concessional (before-tax) contributions, including age-based limits. This means individuals under the age of 65 and those aged 65 to 74 who pass the work test can make carry-forward contributions.

It’s important to note, however, that your Total Super Balance must be under $500,000 just before the start of the financial year in which you wish to make the additional concessional contributions using the carry-forward rules.

Case study

Yani has a Total Super Balance of $250,000 but did not have any concessional (before-tax) contributions made into her super account in 2018/2019 as she took time off work to care for her elderly mother.

In 2019/2020, Yani contributes $50,000 in concessional (before-tax) contributions into her super account by taking advantage of the carry-forward contribution rules. Her $50,000 cap in 2019/2020 comprises $25,000 for the normal annual concessional contributions cap and $25,000 from her unused 2018/2019 cap which she carried forward.

Yani’s concessional contributions cap will reset in 2020/2021 back to her normal annual cap of $25,000.

For more information, see SuperGuide article Carry-forward contributions: How your unused contributions cap can help you catch up.

Making concessional (before-tax) contributions: Am I eligible?

For you or your employer to make concessional contributions into your super account, you must meet the 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. If you are aged under 18, you must work a minimum of 30 hours per 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 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 cannot force them to agree.
• Age:
  • If you are aged under 65, you are eligible to make salary sacrifice contributions into your super account.
  • If you are aged 65 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).
  • If you are aged 75 and over, you are not permitted to make salary sacrifice contributions. For more information on the work test, see SuperGuide article Work test: Making super contributions over 65.

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. Note: Prior to 1 July 2017, tax deductions for personal contributions into your super account were only available to people earning less than 10% of their income (assessable income, reportable fringe benefits and total reportable employer super contributions) as an employee. This meant the deduction was generally only available to those people who were fully self?employed.

• Age:
  • If you are aged under 65, 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 aged 65 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) to make a contribution.
  • If you are aged 75 and over, you are generally not permitted to make a contribution 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 pass the work test.
• Notification: To claim a tax deduction, you must have given your super fund a Notice of intent to claim or vary a deduction for personal contributions form and have received an acknowledgement from the super fund. You must also still be a member of the fund and it must still hold your contribution. The 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 lodgment of 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 the deduction, when you complete your tax return you can claim the amount stated on 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, FHSSS amount recontributed to your super account, or Downsizer contributions. 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.

Case study

During 2018/2019, Kumiko worked as a business manager at an IT company and earned a salary of $50,000.

She made personal (after-tax) contributions into her super account during the financial year totalling $4,000 and she intends to claim these as a deduction in her annual income tax return.

Kumiko sent her super fund a Notice of intent to claim or vary a deduction for personal contributions form noting she wished to claim a deduction for $4,000 and she received a written acknowledgement of the notice from her super fund several weeks later.

As Kumiko meets all the necessary eligibility criteria, she is able to claim a deduction for her personal super contributions of $4,000 in her 2018/2019 tax return.

Watch your timing or risk going over your concessional 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), they are not required to make SG contributions into your super account at the same time. In fact, they have until 28 days after the end of each quarter to make their SG payments.

When working out your concessional contributions for the financial year, it’s important to remember that contributions do not count when the payment is sent, they only count once the payment is received by your fund.

For SMSFs: Making in-specie contributions

Members of an SMSF can make ‘in-specie’ contributions into their super account of certain assets – something that is generally unavailable to members of other types of super funds. An SMSF member can then elect for the in-specie assets to be classed as either a concessional or non-concessional (after-tax) contribution.

Only certain assets listed in the super legislation can legally be transferred in-specie by an SMSF member into their super account. These include ASX listed securities, widely held managed funds, a business or commercial property and cash-based investments such as bonds.

You need to take care when making in-specie contributions and ensure you remain under the relevant contributions cap. For more information, see SuperGuide article Guide to in-specie transfers for SMSFs.