The level of concessional contributions that can be made into your super account is limited.
It is the concessional contribution cap limits the amount that you can receive each year.
However, from 1 July 2018, unused concessional caps can be carried forward and used in subsequent years for eligible individuals.
What Does Concessional Contribution Mean?
A concessional contribution allows the contributor to claim a tax deduction for making the contribution to a member account.
The contributor is not always the member themselves.
In fact, in most cases, concessional contributions are made by the your employer.
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Concessional Contribution Cap
The current concessional contribution cap is $25,000 per financial year.
This concessional contribution cap applies to individuals of all ages.
Age limits may restrict the types of contributions that can be made or received into super.
From 1 July 2018, you are able to carry-forward any unused portion of the concessional cap for up to 5-years.
However, the carry-forward rule can only be utilised if you have a superannuation balance below $500,000.
The 5-year period is calculated on a rolling 5-year basis.
Because the carry-forward catch-up provisions commence from 1 July 2018, the financial year commencing 1 July 2019 is the first year that catch-up concessional contributions can be used.
Carried-forward amounts not used within 5-years will simply expire.
Types Of Concessional Contributions
Mandated employer SG contributions are contributions that an employer must make into an employees account.
The superannuation guarantee rate is currently 9.5% p.a. and is calculated as a percentage of your wage or salary.
Your employer is required to pay superannuation guarantee payments into your account at least quarterly.
The amount they need to pay you is limited by the maximum superannuation contribution base.
Your employer will claim a tax deduction for SGC contributions, which means they are concessional contributions.
Salary sacrifice contributions are made under an arrangement with your employer, where you have requested an increase in super contributions in exchange for an equivalent reduction in your wage.
Similar to your wage, your employer will claim a tax deduction for salary sacrifice contributions, which means they are concessional contributions.
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Personal concessional contributions are contributions generally made from your personal bank account if you are, for example, self-employed.
A tax deduction is then claimed on your personal income tax return for the amount of the contribution.
Previously, personal concessional contributions were limited to people who earned less than 10% from an employer.
However, as of 1 July 2017, anyone, including employees are able to make personal concessional contributions.
The rule was changed for a number of reasons.
One reason was that some employers do not offer salary sacrifice arrangements.
Another reason is that employers may only be legally obligated to pay compulsory SG contributions on your wage that remains after the salary sacrifice contributions; thereby potentially reducing the amount of SG contributions received as a result of the salary sacrifice arrangement.
All of the contributions referred to, above, will count towards the concessional contributions cap.
Therefore, you should take into account employer SG contributions when calculating how much you can contribute as salary sacrifice or personal concessional contributions.
Tax On Concessional Contributions
All concessional contributions are taxed at 15%.
This is known as contributions tax.
For most people, this tax is deducted from the contribution upon being contributed to your super fund.
The remaining 85% of the contribution is then allocated to your member account.
If you have a self managed superannuation fund (SMSF), the concessional contribution is included as income when the SMSF submits its tax return at the end of the year.
All income within a SMSF accumulation account is taxed at 15%.
Contributions Tax for High Income Earners
High-income earners pay more tax on concessional contributions.
High-income earners are defined as those with an income for Medicare Levy surcharge purposes over $250,000 per financial year
The Division 293 Tax means that high-income earners will incur a further 15% contributions tax on top of the standard contributions tax.
Low Income Super Contribution
The low-income super contribution is a contribution made by the Government to your super account.
If you earn less than $37,000 p.a., you may be eligible to receive a low-income super contribution.
The low-income super contribution is designed to effectively refund the contributions tax that was paid by a low-income earner.
The low-income super contribution is calculated as 15% of the concessional contributions that you or your employer paid into your super account.
The minimum low-income super contribution you will receive is $10 and the maximum is $500, assuming you made or received concessional contributions in that year.
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Excess Concessional Contributions
Concessional contributions received into your account over and above the concessional contribution cap are classified as excess concessional contributions.
You may have the option of having these excess concessional contributions refunded from your super account.
Excess concessional contributions can then be taxed at your marginal tax rate for the financial year in which the cap was exceeded.
You will receive a tax offset equal to the excess concessional contributions, to account for the contributions tax already paid.
You will also be liable for the excess concessional contribution charge (ECCC) on the earnings that were taxed at a concessional rate during the period your excess contributions were in your super account.