Concessional vs Non Concessional Contributions

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. If you’re looking for more personalised advice, have a chat with one of our experts at www.superguy.com.au/need-advice

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10 Comments

  1. Phyl

    Hi
    My husband has turned 65 and is eligible to withdraw his super. We have an investment property loan. If we withdraw and offset the amount it saves us $700 pm. Other option is to withdraw $700 and leave remainder in the fund to grow. Unsure what to do?
    I am still working and my retirement is 10 years from now

    Reply
    • Chris Strano

      Hi Phyl,
      There is no right or wrong answer. It all comes down to your objectives and appetite for risk. An idea might be to compare the after-tax savings on the investment loan by having money in the offset account with expected earnings if the amount remains in super. I am unable to provide personal advice. You should seek advice from a qualified financial planner if you would like specific recommendations.
      Sorry I couldn’t be of more help.
      Kind Regards,
      Chris

      Reply
  2. Will

    Hello,
    My question relates to non-concessional contributions.
    I am 56 with an industry super fund balance of $500,000 (into which I salary sacrifice annually up to the $25,000 concessional cap), plus a potential indexed pension of $10,000 from the PSS. My wife has a potential CSS pension of $29,000 that she can access when she retires later this year. I plan to retire gradually over the next couple of years. We also have $300,000 in a term deposit.
    I am wondering if it makes sense to put all or part of the $300,000 into super as non-concessional contributions. There seem to be tax advantages but also a risk of a lack of flexibility if the rules change.
    Thanks for your help.

    Reply
    • Chris Strano

      Some benefits of making non-concessional contributions to super – all earnings received from investments in a superannuation accumulation account are taxed at a maximum of 15%
      Some disadvantages/risks of making non-concessional contributions to super – unable to access super in full until you meet a definition of retirement or reach age 65. Changes to legislation may impact tax benefits and/or accessibility of super.

      Ultimately, you need to consider what your long-term goals are. This can provide guidance around what you do with your funds. You may consider employing a financial planner to assist with this.

      Reply
  3. Simon

    Hello,
    For Personal Concessional Contributions, you said it is for self employed mainly, the ATO website says “most people under 75 years old can claim a tax deduction for personal super contributions”? Also how does doing this compare to salary sacrifice? They are both taxed at 15% but PCC you could pay a lump sum in June where as SS is paid each payday? Any other catches?
    Thanks

    Reply
    • Chris Strano

      Hi Simon, new rules from 1 July 2017 permit employees to either make salary sacrifice contributions or personal concessional contributions, due to some employers not providing the ability to salary sacrifice into super.Yes, both incur contributions tax of 15% upon entering the Fund. They are essentially the same thing. Salary sacrifice may result in compulsory employer SG contributions being calculated on the ‘after salary sacrifice’ salary, which is obviously not a good thing. This should be checked with the employer.

      If personal concessional contributions are made as a lump sum, you will need to complete a ‘Notice of intent to claim a deduction form’ and send it to your super fund. This form is available from your superannuation provider or the ATO version here https://www.ato.gov.au/uploadedFiles/Content/SPR/downloads/n71121-11-2014_js33406_w.pdf

      Reply
  4. Barry Field

    Hi

    I’m almost 66 and have been retired for 6 years as a self-funded retiree. My Super funds are now about $200,000. I contracted to sell my house (old house on 6.5 acres) to a developer and am intending to buy a house in Sydney in the suburbs. I can’t quite figure out if I qualify for the ‘downsizing’ rule and can put $300,00 into my super under this rule. The house is not subject to capital gains and has been mine for 10 years having inherited it. The put/call contract for the delayed sale was signed in May 2017 (there have been two variations this year, re the final settlement date) so the final settlement won’t now be made until January 2020. I have just been paid this month a $300,000 progress payment so I was wondering, is the Downsizing Rule still available and could I put the progress payment into my super under this rule?

    Reply
    • Chris Strano

      Hi Barry,
      Interesting situation.
      My initial thoughts are that you are not eligible, due to the contract already being in place.
      The ruling states: A contribution can only be a downsizer contribution where the contract for the disposal of the relevant dwelling interest is entered into on or after 1 July 2018.
      You can read more here.
      You should discuss your options with your accountant or financial planner.

      Reply
  5. laura

    Hi Chris,
    I’m trying to figure out if i make CC or NCC contributions for 6-12 months to then pull it out for the FHSSS scheme. I understand for CC i can access 85% of those contributions whereas for NCC i can access 100% of contributions, so trying to figure out what is better for me, avoid going over a cap and not end up with a tax debt. Also considering it’s a relatively short period of time, what’s the best way to maximise the FHSSS scheme for a house deposit? thankyou

    Reply
    • Chris Strano

      Hey Laura, apologies for the late reply. I somehow missed your comment.
      Generally, making concessional contributions to super is viable if your personal marginal tax rate is greater than the super contributions tax rate of 15%. For example, if you contributed $10k as a CC, you would have $8.5k for a home; whereas if your highest personal tax rate was 32.5%, you would only effectively have $6,750 remaining on the same $10k. Does that make sense?
      The other benefit of FHSSS is that earnings within the account are taxed at only 15%, compared to being taxed at your personal tax rate if invested in your own name. Again, this is only beneficial if your marginal tax rate exceeds 15%.
      How should it be invested for 6-12 months? That is a very short period of time. Usually cash and term deposits are recommended for this timeframe due to the volatility associated with other asset classes such as shares and property. Due to the short timeframe, you would really need to question whether there is any benefit of making NCCs to the account, as the only upside of these is that earnings would be taxed at 15% – when you figure out earnings over 6-12 months and the difference in the tax on those earning, given the capped FHSSS balance, the tax benefit probably doesn’t equate to a lot.
      You can read more here about the caps etc. https://www.ato.gov.au/Individuals/Super/Withdrawing-and-using-your-super/First-Home-Super-Saver-Scheme/

      Reply

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