Tax on non-concessional contributions to super can be divided into three parts.
Namely, contributions tax, earnings tax and withdrawal tax.
Contributions tax is tax payable on certain contributions made to superannuation.
Earnings tax is payable on earnings received from investments within the superannuation accumulation or pension environment.
Withdrawal tax is payable in some cases when lump sum withdrawals, pension payments or death benefits are paid out superannuation.
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Tax on Non-Concessional Contributions
The information below details the specific rate of tax on non-concessional contributions and when it is payable.
Contributions Tax On Non-Concessional Contributions
Non-concessional contributions are not taxed upon entry to a superannuation account.
The total amount contributed to superannuation as a non-concessional contribution will be allocated to the member account.
No tax will be deducted from the non-concessional contribution amount.
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The reason a non-concessional contribution does not incur any contributions tax is because it is an after-tax contribution.
An after-tax contribution means that income tax has already been paid at a person’s marginal tax rate on this amount, prior to it being contributed to super.
Furthermore, a tax deduction is not claimed for non-concessional contributions.
Hence the the term ‘non-concessional’.
Excess Non-Concessional Contributions Tax
The non-concessional contribution cap is $100,000 per person, per financial year.
Individuals under age 65 have the ability to bring-forward up to two additional years’ of the cap.
This is done by utilising the non-concessional contributions bring forward rule.
The bring forward rule effectively allows for $300,000 to be contributed to super as a non-concessional contribution at any point over a three financial year period, without needing to consider the annual cap.
People over age 65 will need to meet the superannuation work test prior to making non-concessional contributions to super.
Exceeding the non-concessional contribution cap will potentially result in excess non-concessional contributions tax.
Excess non-concessional contributions tax may be payable in the situation where the non-concessional cap has been exceeded.
In such an instance, there are two options.
Option 1 is to nominate to have the excess amount released from super, plus 85% of the associated earnings.
The associated earnings are then taxed at the person’s marginal tax rate, less a 15% non-refundable tax offset.
Option 2 is to leave the excess contributions within super.
This will result in the excess incurring excess non-concessional contributions tax and being taxed at the highest marginal tax rate.
Earnings Tax on Non-Concessional Contributions
Once non-concessional contributions have been made to superannuation, they are invested within the superannuation account.
While the funds remain invested in accumulation phase of superannuation all earnings are taxed at 15%.
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However, a 33% discount is applied to capital gains within super accumulation phase if the asset sold was owned for longer than 12 months.
The earnings tax on non-concessional contributions transferred to a non-commutable account based pension (TTR Pension) is identical to the tax in accumulation phase, as detailed above.
Earnings received from non-concessional contributions transferred into an ordinary account based pension are received completely tax free.
In fact, when it comes to earnings tax within superannuation, the type of contribution is not relevant in determining the tax that will be payable.
The earnings tax rate applicable is determined by the phase that the super account is in (i.e. accumulation phase / TTR pension phase / pension phase).
If the fund has one or members with their savings in one or more of the phases noted above, the earnings tax applied is done using either the proportionate or segregated method.
Withdrawal Tax on Non-Concessional Contributions
The beauty about non-concessional contributions is that they can always be withdrawn tax free.
This is true whether the withdrawal is made as a lump sum from an accumulation account, a pension payment, or as a death benefit to a beneficiary.
In all instances there is no withdrawal tax on non-concessional contributions.
It also doesn’t matter what age the withdrawal is made at. Over 60, under 60, or somewhere in between; all withdrawals of non-concessional contributions are tax free.