Understanding the difference between concessional and non-concessional contributions, and the way each is treated, can really help you make the most of your super account.
Concessional contributions, also called before-tax contributions, are the funds that go into your super account from your before-tax income. Your concessional contributions can come from a few different sources, such as employer superannuation guarantee amounts, a salary sacrifice arrangement you’ve made, or tax-deductible contributions (for example if you’re self-employed or decide to make extra contributions yourself). Concessional contributions typically make up the bulk of your super savings and are generally taxed at 15%.
In the past, there were different limits for concessional contributions depending on your age, but from the 2017-2018 financial year onward the rules have been simplified. Now, the limit is $25,000 regardless of your age, and is the maximum amount of concessional contributions that can be added into your super fund without paying extra tax.
However, if you had less than $500,000 in your super fund on 30 June 2017, from 1 July 2018 you will be able to carry-forward any previously unused portion of the concessional cap and make extra deposits in later financial years. This means that if you put in a lower amount in previous financial years, you can effectively ‘catch up’ to the maximum you could have contributed.
Any amount that you attempt to pay into your fund as a concessional contribution that is over the $25,000 limit will be taxed at your marginal tax rate, plus an extra interest charge to cover the late payment of your tax liability. This extra charge is calculated quarterly equal to the monthly average yield of 90-day Bank Accepted Bills published by the Reserve Bank of Australia, plus an extra 3%. For example, the extra charge for October-December 2017 is 4.7%.
Non-concessional contributions are, as you probably guessed, super contributions made from your after-tax income. There have been different rules in previous years about how much after-tax money you could contribute, but since 1 July 2017 the annual cap is $100,000 (with a bring-forward provision we’ll explain below). Non-concessional contributions aren’t taxed when they’re received by your super fund, but once the money is added to your account, any investment earnings will be subject to the usual superannuation tax rate of up to 15%.
As with concessional contributions, there are ways to increase your non-concessional contributions during a specific financial year. If you are aged 64 or under, you can use the ‘bring forward’ rules to make a larger payment now, but this will reduce the future contributions you can make. In this way you can contribute up to $300,000 in a single financial year, although you may not be able to make further contributions in the next two years once you use up the cap.
Exceeding the non-concessional contribution cap can be very costly as the excess amount will be taxed at a 47% rate. In this case you are allowed to withdraw the excess amounts and avoid the penalty. You should also take note that if your total super balance is greater than $1.6 million you are no longer allowed to make non-concessional contributions.
Exceeding the caps on super contributions can be a costly mistake, so make sure you know how much is going into your super fund from all sources, especially if you work multiple jobs and if you pay into multiple super accounts. If you think you will go over the caps, you may need to take steps to reduce or stop any additional payments over your compulsory super payments.
Have you compared your superannuation fund lately? If you’re considering outstanding value superannuation funds, check out the table below which displays a snapshot of 5-Star superannuation funds on Canstar for Australians aged 30-39 with a super balance of $55k – $100k, sorted by provider name (alphabetically). Use Canstar’s superannuation comparison selector for a wider selection of super funds based on your individual circumstances.
To view the past performance of all super funds, rated by Canstar, use our comparison tool: