A Concessional Contribution is a contribution made to superannuation where a tax deduction has been claimed by the contributor.
Some examples of Concessional Contributions are:
- Superannuation Guarantee (SG) contributions
- Salary Sacrifice Contributions (employees)
- Personal Deductible Contributions (substantially self employed)
What is the Superannuation Contributions Tax Rate?
The rate of Contributions Tax is 15%. However, as of 1 July 2012, people with incomes exceeding $300,000 incur an additional 15% tax (total of 30%) under division 293 tax. This income threshold is reducing to $250,000 from 1 July 2017 due to new superannuation changes. Read more about this additional tax for high-income earners here.
When is Superannuation Contributions Tax payable?
Generally, Contributions Tax is deducted from the Concessional Contribution at the time the contribution is made. The net amount will the be paid into the member’s account. This is the case for Industry Superannuation Funds, Retail Superannuation Funds and Corporate Superannuation Accounts.
CONTRIBUTIONS TAX EXAMPLE
If a person received SG Contributions of $7,000 throughout the year and also salary sacrificed $500/month ($6,000 p.a.), Superannuation Contributions Tax of $1,950 ($13,000 x 15%) would be payable. The net after-tax contribution of $11,050 would then be deposited into their account.
CONTRIBUTIONS TAX – SMSF
However, where a Concessional Contribution is made into a Self Managed Superannuation Fund (SMSF), the full contribution is usually paid into the main bank account of the SMSF and the contribution is included in the assessable income of the Fund at tax time. Therefore, Contributions Tax is not applied at the time the contribution is made, but rather when the tax return is completed.
The Benefit of a Concessional Contribution?
An employer should receive a tax deduction for making superannuation guarantee (SG) payments and an employee will reduce their taxable income by forfeiting part of their wage in exchange for contributions into their superannuation via a salary sacrifice arrangement. Therefore, this portion of their income only incurs tax of 15% (unless their income exceeds $300,000), rather than having this amount taxed at their Marginal Tax Rate (MTR). The downside? It is inaccessible until they meet a Superannuation Condition of Release.
What is Excess Contributions Tax?
Between 1 July 2007 and 1 July 2013, all Excess Contributions were taxed at 31.5%. As of 1 July 2013, Excess Contributions are taxed at the member’s personal MTR. The way this works is that the contributions in excess of the cap are included in the member’s personal assessable income and a non-refundable tax rebate for the standard 15% Superannuation Contributions Tax is received by the member. This ensures that tax in excess of their MTR is not paid. However, an Excess Contributions Charge may apply, as the tax is not payable until a later date than would otherwise be the case under PAYG rules.
In this instance you can opt to have up to 85% of the excess contributions released from super.
What happens to Excess Contributions?
Excess Concessional Contributions that have not been refunded will count towards the Non-Concessional Contributions Cap. If these contributions cause the Non-Concessional Cap to be exceeded, Excess Non-Concessional Contributions Tax of 46.5% will be applied to the excess amount, unless the excess is withdrawn.
Can I get out of paying Contributions Tax?
Unfortunately Superannuation Contributions Tax cannot be avoided. However, if you make contributions to superannuation without you or someone else claiming a tax deduction, you will not incur Contributions Tax. This known as an after-tax contribution or, more formally, Non-Concessional Contribution.