Comparing Concessional and Non Concessional contributions.

This article discusses the difference between Concessional and Non-Concessional contributions, including what is a Non-Concessional contribution and what is a Concessional contribution.

There are only two types of contributions that can be made into your superannuation account:

Concessional Contributions; and
Non-Concessional Contributions.

Sometimes these contributions are made by you into your own superannuation account.

Sometimes others make the contributions into your account for the benefit of you.

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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

 
Employer superannuation guarantee contributions (SGC) are mandatory contributions that your employer must make into your superannuation account.

SGC is calculated as a percentage of your wage.

The current SGC rate is 9.5%, subject to the maximum contribution base.

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.

WATCH: In this video I explain the difference between Concessional an Non-Concessional contributions.
 

 

Salary Sacrifice Contributions

 
A salary sacrifice superannuation contribution is an arrangement where you forfeit part of your wage in exchange for equivalent increased super contributions.

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 $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.

Be mindful, your employer may only be required to pay mandatory SG contributions on your reduced $70,000 salary (instead of $80,000), depending on your employment agreement.

Reduced SGC is one of a handful of risks associated with salary sacrifice contributions to super.

You may consider making personal concessional contributions instead of salary sacrificing into super.

Personal concessional contribution can now be made by employees, also.
 

Personal Concessional Contributions

 
A personal concessional contribution was previously a contribution made to superannuation by self-employed or substantially self-employed people.

However, from 1 July 2017, employees are also able to make personal concessional contributions.

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.

A personal concessional contribution is made by an individual into their superannuation account. Then they have the ability to claim a tax deduction for the full amount, after notifying their super fund of their intent to claim a tax deduction.

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.

Personal concessional (deductible) contribution rules have been extended to employees. 
 

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.

Low income earners may be eligible to receive the Government Low Income Super Contribution.

The Low Income Super Contribution is a measure designed to refund Contributions Tax paid by low income earners.
 

Concessional Contribution Cap

 
The current maximum that can be contributed into your superannuation account as a Concessional contribution (from all sources) is $25,000 per financial year.

However, more may be able to be contributed using the carry-forward unused concessional contribution cap rules.
 

Other Considerations

 
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?

 
A Non Concessional contribution is a contribution that you make to superannuation without claiming a tax deduction (i.e. after-tax contributions).

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.

The most common condition of release is meeting the superannuation definition of retirement.

Sometimes it may be better not to contribute to super.

You also need to make sure it is affordable and within the constraints 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 $100,000 per financial year.

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

This bring-forward rule effectively allows you to contribute up to $300,000 over three financial years, with no regard to the annual cap.

Individuals with a total superannuation balance (including pensions) exceeding $1,600,000 are not 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.

Despite being classified as Non-Concessional contributions, home downsizing contributions do not count towards the Non-Concessional contribution cap.

Home downsizing contributions can also be made if your balance exceeds $1.6 million.
 

Other Considerations

 
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 and taxed accordingly.

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

Item CC NCC
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.

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/c/superguyau

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