Comparing Concessional and Non Concessional Contributions.
There are only two types of contributions that can be made into your superannuation account:
– Concessional Contributions; and
Sometimes these contributions are made by you into your own superannuation account, and sometimes others make the contributions into your account for the benefit of you.
So, let’s begin with Concessional Contributions.
What is a Concessional Super Contribution?
A Concessional Contribution is a contribution that you or someone else makes to your superannuation account and then claims a tax deduction in respect of that contribution.
Concessional Contributions include:
– Employer Superannuation Guarantee (SG) Contributions
– Salary Sacrifice Contributions
– Personal Concessional Contributions
Employer SG Contributions
These are mandatory contributions that your employer must make into your superannuation account. It is calculated as a percentage of your wage. Currently it is 9.5%. Therefore, if you earn $80,000 p.a. your employer will also need to contribute an additional $7,600 p.a. into your super account (up to the maximum contribution base). Your employer will claim a tax deduction for this contribution, as it is a business expense, which therefore makes mandatory employer SG contributions a Concessional Contribution.
Salary Sacrifice Contributions
A salary sacrifice superannuation contribution is an arrangement where you forfeit part of your gross wage in exchange for equivalent increased super contributions. So, for example, if you had a salary of $80,000 p.a. and wanted to salary sacrifice $10,000, your new effective wage would be $70,000 p.a., yet your super contributions would increase by $10,000. You would only pay personal income tax on the $70,000. Again, your employer will claim a tax deduction for this $10,000 contribution, as it is a business expense, which therefore makes salary sacrifice contributions a Concessional Contribution. However, be careful, because depending on your employment agreement, your employer may only be required to pay mandatory SG contributions on your reduced $70,000 salary (instead of $80,000).
Personal Concessional Contributions
A personal concessional contribution is a contribution made to superannuation by self-employed or substantially self-employed people. As self-employed people do not have a wage/salary, they are unable to salary sacrifice. However, a personal concessional contribution is essentially the same thing. This contribution is made by an individual into their superannuation account and then they have the ability to claim a tax deduction for the full amount. For example, if you are a self-employed person who earns $80,000 for the year and you make a $5,000 personal concessional contribution into your superannuation account, you can then claim that amount as an expense on your tax return. Because you will be claiming a tax deduction for this contribution, it will be considered a Concessional Contribution.
Tax On Concessional Contributions
All Concessional Contributions incur Contributions Tax of 15% upon entry into your superannuation fund. An additional 15% may be charged if you are a high-income earner. Click here to read more about the Division 293 Tax on high-income earners.
Concessional Contribution Cap
The current maximum that can be contributed into your superannuation account as a Concessional Contribution (from all sources) is $30,000 for people aged under 49 years. For those aged 49 years or over, the Concessional Contribution cap is $35,000. As of 1 July 2017, it is proposed that there will be a universal Concessional Contribution cap of $25,000 for everyone.
You should also consider whether or not you are required to meet a superannuation contribution work test and whether you meet the age requirements to be able to make Concessional Contributions.
What is a Non Concessional Super Contribution?
Put simply, this is a contribution that you would make from your personal bank account with the intention of increasing your retirement savings in the tax effective superannuation environment.
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You are unable to claim a tax deduction for Non-Concessional Contributions.
Tax On Non Concessional Contributions
A Non-concessional contribution does not incur any tax upon entering your superannuation fund and is a great way to save for retirement, provided you understand it cannot be accessed until you meet a superannuation condition of release. Sometimes it may be better not to contribute to super. You also need to make sure it is affordable and within the constrains of your household budget.
Non-Concessional Contribution Cap
The current maximum amount that you are able to contribute as a Non Concessional Contribution into your super account is $180,000 p.a. However, if you are under age 65, you have the ability to ‘bring-forward’ up to two years’ worth of the cap – effectively contributing up to $540,000 in one year – ensuring that you don’t exceed $540,000 in this and the following two financial years. Although, this is the final year (2016/17) that these rules apply. As of 1 July 2017, the maximum Non Concessional Contribution cap will be $100,000 p.a. (also with a bring-forward provision for individuals under age 65 – $300,000 over 3 years). However, individuals with a superannuation balance exceeding $1,600,000 will not be able to make any further Non Concessional Contributions.
There are transitional Non Concessional Contribution caps for individuals who trigger the Bring Forward Rule in the 2015/16 or 2016/17 financial years…. read more.
You should also consider whether or not you are required to meet a superannuation contribution work test and meet the age requirements to be able to make Concessional Contributions.
Exceeding either the Concessional or Non-Concessional cap will result in the excess amount being treated as an Excess Contribution. Read about Excess Contributions Tax here.
The ATO provides you with options as to how excess non-concessional contributions will be dealt with.
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Difference Between Concessional and Non Concessional Contributions
CC = Concessional Contribution
NCC = Non Concessional Contribution
|Can Claim Tax Deduction||Yes||No|
|Incurs contributions tax||Yes||No|
|Has annual cap||yes||yes|
|Can make or receive contribution under age 65||yes||yes|
|Can make or receive contribution 65-74||yes (work test applies)||yes (work test applies)|
|Can make or receive contribution 74 years+||employer SG only||No|
|Always tax free when withdrawn from super?||no||yes|
|Always paid tax free to beneficiaries upon death?||no||yes|
Hopefully this has helped you compare the difference between Concessional and Non Concessional superannuation contributions.