Non-Concessional contributions are a type of contribution made to superannuation.

What defines a Non-Concessional contribution is that a tax deduction has not been claimed for making the contribution.

The benefit of making superannuation Non-Concessional contributions is that you are placing more of your wealth in a tax-effective environment.

While a tax deduction is unable to be claimed for Non-Concessional contributions, the earnings tax within super is concessional.

Non-Concessional contributions are made to a superannuation accumulation account.

The owner of the accumulation account (you) is called a superannuation member.

These Non-Concessional contributions are then invested within the accumulation account.

How the member’s accumulation balance is invested (i.e. investment option/s) is a decision made by the member.
 

What are Non-Concessional Contributions?

 
Non-concessional super contributions are sometimes also referred to as personal after-tax contributions.

This is because Non-Concessional contributions are usually made with savings from a personal bank account, after income tax has been paid.

Unlike Concessional contributions, Non-Concessional contributions do not have contributions tax deducted from them upon being contributed to super.

The contributions tax rate on Concessional contributions is 15%. This is effectively refunded for low-income earners.

An additional 15% contributions tax is payable by high income earners.

Non-Concessional contributions are always contributed and withdrawn from super tax free.

Non-Concessional contributions make up the Tax-Free element of a superannuation balance.
 

Tax on Non-Concessional Contributions

 
Tax On Earnings

When a Non-Concessional super contribution is contributed to an accumulation account it is invested.

While in accumulation phase, all earnings derived from the balance are taxed at a maximum of 15%

In fact, all earnings within an accumulation account are taxed in the same manner, regardless of the type of contributions made to the account, or the age of the member.

Once you reach your superannuation preservation age, you can choose to start an income stream if you wish.

This can be done with some or all of your balance.

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If you are still working, you might commence a non-commutable transition to retirement pension.

If you have satisfied the definition of retirement for superannuation purposes, you might start an ordinary account based pension.

Tax on earnings within a transition to retirement income stream is the same as an accumulation account – up to 15%.

Earnings tax on investment returns within an account based pension are received completely tax free.

Again, the tax rate on earnings within pension accounts is the same regardless of the type of contributions that were made to make up the balance.
 
Tax on Contributions and Withdrawals

There is no tax payable when a Non-Concessional contribution is made to superannuation.

When Non-Concessional super contributions are made, they form part of the Tax-Free element of the balance.

The remainder of the balance is the Taxable element.

All withdrawals from superannuation, must be made proportionately from each tax element / component.

The Tax-Free component of a superannuation withdrawal will always be received tax free.

This is true whether the super withdrawal is a lump sum withdrawal, a pension payment, or a death benefit.

You will need to contact your superannuation provider to find out the Tax-Free / Taxable ratio of your balance.

The tax component ratio will change daily in accumulation phase.
 

Difference Between Concessional and Non-Concessional Contributions

 
A Non-Concessional contribution is a contribution made to super where a tax deduction has not been claimed by the contributor.

A Concessional contribution is a contribution where a tax deduction has been claimed by the contributor.

A Non-Concessional super contribution is generally made from savings in a personal bank account.

Some examples of Concessional contributions include employer superannuation guarantee (SG) contributions, salary sacrifice super contributions and personal concessional contributions.

Non-Concessional contributions count towards the Tax-Free element of a super balance; whereas Concessional contributions count towards the Taxable element.

Concessional contributions incur contributions tax upon entry to a super fund. Non-Concessional contributions do not.

Non-Concessional contributions can always be withdrawn tax free from super as a lump sum or a superannuation income stream.

Concessional contributions may incur withdrawal tax when withdrawn from super, depending on the age of the member and the type of withdrawal.
 

Non-Concessional Contribution Cap

 
The maximum Non-Concessional contributions that can be made to superannuation is determined by the Non-Concessional contribution cap.

The current Non-Concessional Contribution cap is $100,000 per person, per financial year.

While under age 65, you have the ability to bring-forward up to two additional years worth of the Non-Concessional contribution cap.

The bring-forward rule allows you to contribute up to three years’ worth of the cap at any stage during that 3-year period, without needing to consider the annual cap.

The bring-forward rule is triggered in the first year that your personal Non-Concessional super contributions exceed the annual cap.

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If you turn age 65 at any stage during the years of the cap that you have brought forward, you will need to make all contributions before reaching age 65, or satisfy the superannuation work test in the years that you make contributions after reaching age 65.

There was a significant reduction in the personal Non-Concessional contribution cap from $180,000 down to $100,000 as of 1 July 2017.

As a result, transitional bring forward rules were put in place.

The transitional bring forward rules are detailed below.

These are the maximum Non-Concessional contributions that can be made when utilising the bring-forward rule over the transitional period.

2015-16 2016-17 2017-18 2018-19 2019-20
More than $460K Nil Contributions End of transition period $100k or 3yr bring forward -
More than $180K but less than $460k Cannot exceed $460k from 2015-16 to 2017-18 End of transition period $100k or 3yr bring forward -
- More than $380k Nil Contributions Nil Contributions End of transition period $100k or 3 yr bring forward
- More than $180k but less than $380k Cannot exceed $380k from 2016-17 to 2018-19 End of transition period $100k or 3yr bring forward

Non-Concessional Contribution Work Test

 
In order to make super contributions when over age 65, you need to meet the superannuation work test.

The superannuation work test requires you to work at least 40 hours over a 30-consecutive day period in the year that you make the contribution and prior to the contribution being made.

However, from 1 July 2019, the superannuation work test does not need to be satisfied in the first year after retirement for individuals with a superannuation balance below $300,000.

The first year after retirement is defined as the financial year after the financial year that you last met the work test.

Personal Non-Concessional contributions cannot be made by a person 28-days after the end of the month in which they turn 75.
 

Excess Non-Concessional Contributions Tax

 
Exceeding the Non-Concessional contributions cap may result in excess Non-Concessional contributions tax.

The excess tax rate for exceeding the Non-Concessional contributions cap is 47%, if you decide to leave the excess contributions in your account.

The history of the excess Non-Concessional contributions tax rate is:

Financial Year Non-Concessional Cap Excess Contributions Tax Rate
2018-19 $100 000 47%
2017-18 $100 000 47%
2016-17 $180 000 47% (plus 2% budget repair levy)
2015-16 $180 000 47% (plus 2% budget repair levy)
2014-15 $180 000 47% (plus 2% budget repair levy)
2013-14 $150 000 46.5%

Alternatively, you may have the option of releasing the excess non-concessional contributions, plus any earnings accumulated.

The earnings will be included in your income tax return, calculated based on the general interest rate over the period that the excess contributions were in your account.

If your excess Non-Concessional contributions are not withdrawn, they will be taxed at the highest marginal tax rate, as noted in the table above.
 

Transfer Balance Cap

 
Your Non-Concessional contributions cap is nil for a financial year if your total superannuation balance exceeds the general Transfer Balance Cap on 30 June of the previous financial year.

Non-Concessional contributions also cannot be made if the contribution itself will cause your total superannuation balance to exceed the Transfer Balance Cap amount.

The current Transfer Balance Cap is $1.6 million.
 

CGT Small Business Concessions

 
A contribution made to superannuation under the CGT Small Business Retirement Exemption is considered a Non-Concessional Contribution.

However, the amount contributed super does not count towards the Non-Concessional contribution cap.

Instead, you can ensure it counts towards your CGT Cap instead, by notifying your super fund via the CGT election form.

This form must be submitted to your superannuation fund at the time of the contribution.

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A CGT Small Business Retirement Exemption contribution can be made even if your total superannuation balance is $1.6 million or more.

With all tax matters, it is important to first seek advice from a tax specialist.

Home Downsizer Contributions

 
From 1 July 2018, eligible individuals aged over 65 can now contribute up to $300,000 home downsize proceeds to superannuation.

The $300,000 limit is per person.

To make a home downsizer contribution, you need to have owned your home for at least 10 years prior to it being sold.

The 10-year period is calculated from the purchase settlement date to the sale settlement date.

The settlement date must be after 1 July 2018.

The home downsizer contribution must be made within 90 days of receiving the home sale proceeds.

If the ownership of the home was only in one spouse’s name, the other is still eligible to make the contribution up to the $300,000 limit.

The home downsizer contribution can be made without meeting the superannuation work test.

It can also be made if your total superannuation pension balance exceeds the transfer balance cap (currently $1.6 million).

You need to notify your superannuation fund prior to, or at the time of making the contribution, that it is to be counted as a home downsizer contribution.

This is done by submitting a completed home downsizer contribution form to your fund.

Click here to check your eligibility to make a home downsizer contribution.

A home downsizer contribution is only able to be made once per person.
 

Superannuation Recontribution Strategy

 
A superannuation recontribution strategy is a process designed to replace the taxable components of your super balance with tax-free components.

By doing so, you reduce potential tax on death benefits and can protect against future legislative changes.

In it’s simplest form, a superannuation recontribution strategy involves making a lump sum withdrawal from super and recontributing it back into super as a non-concessional contribution.

For the recontribution strategy to be viable, your existing balance would partially or fully consist of taxable components.

Then, when recontributed to super as a non-concessional contribution, these taxable components would convert to tax-free components, as all non-concessional contributions count towards the tax-free element of a super balance.

You can use this calculator to see the benefits of a recontribution strategy.

It is important to be mindful of any tax consequences in making the withdrawal and ensure that you have met a full superannuation condition of release to access your super balance in the first place.

Non-concessional contributions made through a recontribution strategy will count towards the Non-Concessional contribution cap.

All standard criteria will also need to be met where relevant, such as the superannuation work test and having a balance below the transfer balance cap.
 

Why Make Non-Concessional Contributions?

 
The advantages of making Non-Concessional contributions is that the amount contributed to super is invested in a tax-effective environment.

All earnings (including capital gains) received from investments in a super accumulation account are taxed at a maximum of 15%.

Compare this to investing in your own personal name, where earnings are taxed at your marginal tax rate, together with all other income you receive, including wages.

The 15% super tax rate can allow you to build wealth faster by paying less tax on earnings.

Furthermore, when you retire and start a superannuation income stream, such as an account based pension, all earnings are received tax free.

Chris Strano

Chris Strano created SuperGuy to help the average punter navigate through the complex and ever-changing super rules. It has since become one of Australia's leading digital super resources. Subscribe to SuperGuy's YouTube channel for the latest strategies to boost your super savings. https://www.youtube.com/channel/UCs1ARI2y18hrjNYVqjtJ-pQ

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