Superannuation
Concessional contribution
A concessional contribution is a super contribution made from pre-tax money, such as employer super guarantee or salary sacrifice, taxed in the fund at a concessional rate and counted against an annual cap.
Concessional contributions are super contributions that go into a fund before income tax has been paid on the money, or for which a tax deduction is claimed. The most common examples are the employer's super guarantee payments, salary sacrifice amounts and personal contributions that the individual claims as a tax deduction. They are called concessional because they are taxed at a lower rate in the fund than most people would pay on the same income at their marginal rate.
Concessional contributions are subject to an annual cap, which is set by the government and indexed from time to time. The ATO publishes the current cap, and it should be checked each year because the figure changes. The cap applies to the total of all concessional contributions for a person, regardless of how many employers or funds are involved. Some people may be able to carry forward unused amounts from earlier years, depending on their total super balance and the conditions in force.
If a person exceeds the cap, the excess is generally added to their assessable income and taxed at their marginal rate, with a tax offset for the tax already paid by the fund on those contributions. The person may also be able to release part of the excess from their fund. The amounts and rules are specific, so people close to the cap should seek advice.
Higher-income earners may pay extra tax on concessional contributions under a separate measure, based on income and contributions above a threshold. The threshold is set by legislation and changes, so check ato.gov.au. This is assessed by the ATO after the return is lodged, and a notice is issued to the individual.
For employers, super guarantee payments are the main source of concessional contributions. They are generally deductible to the business when paid on time, whether the business is a sole trader, partnership, company or trust. GST does not apply to super contributions and no credits are available, but the payments should still be properly recorded in the accounts and BAS payroll labels where relevant.
A common misunderstanding is that salary sacrifice avoids the cap. It does not, because salary sacrificed amounts count as concessional contributions. Another is forgetting that employer SG counts towards the cap, meaning that additional voluntary contributions can push someone over it without them realising.
This is general information only, so confirm your situation with the ATO or a registered tax professional.
Worked example
Marcus earns $90,000 and his employer pays SG as required, say $9,000 for illustration. He also salary sacrifices $6,000 a year to super. Both amounts are concessional contributions and count towards his cap. The total is $9,000 + $6,000 = $15,000 for the year, which he compares with the current cap published by the ATO to make sure he has not exceeded it.
Practical tips
- Add up employer SG, salary sacrifice and personal deductible contributions before making any extra contribution late in the year.
- Remember that unused cap amounts from earlier years may be available, but only if you meet the balance and timing conditions.
- Check the current cap each year, because the figure is not fixed.